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Analysis: Delta Resumes Atlanta – Seoul and Hints at Softening Relations with Korean Air

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Analysis: Delta Resumes Atlanta – Seoul and Hints at Softening Relations with Korean Air

Analysis: Delta Resumes Atlanta – Seoul and Hints at Softening Relations with Korean Air
September 09
09:47 2016

MIAMI — The “Cold War” between Delta Air Lines and its estranged SkyTeam partner, Korean Air, may soon be thawing. Delta has announced a resumption of services from Atlanta to Seoul beginning June 3, 2017, which highlighted, among other things, an “enhanced partnership” with Korean Air moving forward.

Delta is in a unique position relative to its primary domestic competitors – American Airlines and United Airlines – in that it does not have an immunized joint venture agreement with a major Asian carrier. While Korean Air is the obvious – and ideal – candidate for Delta to match the powers of American’s joint venture with Japan Airlines and United’s joint venture with All Nippon Airways, relations between Delta and Korean Air have frayed in recent years due to different views on how to define the scope of the partnership.

The “new” relationship came out of the woodwork, to the surprise of many, and while it may seem like things have turned a corner, there will still be piecemeal elements to it.  The good news for both Delta and Korean Air is that the partnership can evolve rather quickly and dovetail on a period of gradual growth from both carriers on each side of the Pacific.

Delta has ceded the market to Korean Air since 2009


This will be Delta’s second attempt at offering a nonstop product from Atlanta to Seoul on its own metal. Delta launched Atlanta – Seoul in June 2007 utilizing a Boeing 777-200ER aircraft, which, at the time, alternated between 3 weekly and 5 weekly peak services between the two cities.

The service was eventually cancelled, largely following the culmination of Delta’s merger with Northwest Airlines. Delta currently flies between Detroit and Seoul on a 747-400 (inherited from Northwest) and Seattle and Seoul on a 767-300ER.

Korean Air, on the other hand, has fared very well in the market, serving as one of the longer-standing foreign carriers servicing Atlanta. Korean Air first launched nonstop service to Atlanta from Seoul Incheon in June 2002 utilizing a 747-400 on a thrice weekly basis before increasing frequencies to daily service in April 2005.

The airline eventually grew its operations to 10 weekly in August 2010 with an additional 777-300ER service thrice a week before eventually reverting back to 7 weekly flights in April 2014. Atlanta was also among the first North American candidates to receive Korean’s Airbus A380 service in August 2014, which operates during peak summer months.

The expanded frequencies to Seoul provided by Delta will effectively increase nonstop flights between Atlanta and North Asia from 2 to 3 daily roundtrips. Besides the two markets flown by Delta and Korean Air to Seoul, Delta also offers daily flights to Tokyo Narita on a 777-200LR.

While Delta’s nonstop service to Tokyo Narita has a longer history of operation, Korean Air’s nonstop service to Seoul has been, on an aggregate-level, a larger market, based on number of seats offered. Presently, Korean Air flies a daily 777-300ER service to Atlanta featuring 8 seats in First, 42-56 in Business and 227 in Economy.

The resumption of Seoul from Atlanta comes with a newsworthy announcement that the carrier will expand its cooperation with Korean Air after years of frosty relations between the two airlines. While Delta and Korean Air were founding members of the SkyTeam Alliance in 2000, the relationship of the two has unraveled in recent times after failing to come to terms on a joint venture agreement.

Delta currently places its code on Korean Air-operated flights from Atlanta to Seoul, but did not carry the Korean Air code when it operated flights between the same city pair between 2007 and 2009. However, per the route resumption announcement, the two will pursue a reciprocal codeshare this time around.

Korean Air will also place its code on 115 Delta-operated flights to U.S. and Canadian destinations beyond Atlanta, Los Angeles and New York City. In return, Delta will place its code on 32 Korean Air flights beyond Seoul and various Asian markets.

Presently, Korean Air carries the Delta code on less than half of its North American flights (to Atlanta, Chicago O’Hare, Dallas/Ft. Worth, Honolulu, New York JFK and Washington Dulles) while Delta only carries Korean’s code on one transpacific route (Detroit to Seoul). Additionally, Delta carries Korean’s code on flights from Atlanta to Santiago, Chile and Rio de Janeiro, Brazil.

Delta’s failed attempt to secure a hub at Tokyo Haneda likely propelled the enhanced codeshare agreement


Delta previously tried and failed to secure daytime slots to Tokyo Haneda airport from Atlanta earlier this year, but was able to two awards to operate from its Los Angeles and Minneapolis/St. Paul hubs. While Delta would ideally like to increase its Asia-Pacific presence from Atlanta, previous efforts to expand into markets, such as Shanghai, have been unviable.

The futile attempt to secure an Atlanta – Tokyo Haneda nonstop flight was likely the last grasp at a series of straws to cultivate a strengthened position in the Tokyo market.  The first – and arguably the initial unraveling of the Delta – Korean Air relationship – was Delta’s aggressive attempts to woo bankrupt Japan Airlines in 2010, who ultimately chose to remain with oneworld.

The second was Delta’s push for SkyMark airlines in 2015, which held onto 36 prized slots at Haneda airport. The third was Korean’s flirtation with other U.S. carriers – namely Alaska Airlines and American Airlines (although the later was smaller in scope) to enhance partnership and frequent flier benefits.

But with Delta unwinding its Narita hub and sitting on two pairs of landing slots at Haneda airport, the sun has now pretty much set on its options for growing in Japan.

For Korean Air, the investment required to lure Delta to expand in Seoul is fairly minimal: the geographical advantage of Seoul’s position between North America and Asia is virtually identical to what Tokyo can capably offer. Korean Air is also not starved for access in North America – having service to 13 city pairs including Los Angeles, New York, Chicago O’Hare, Atlanta, Dallas/Ft. Worth, San Francisco, Honolulu, Houston, Washington Dulles, Toronto, Vancouver, Seattle and Las Vegas. There is room for additional growth – Boston, Portland and Minneapolis/St. Paul all come to mind.

Delta also brings significant offline markets closer to Korean: with the exit from Sao Paulo, and plans postponed to launch Lima, Korean Air can virtualize its network in Latin America via Delta in Atlanta. The hope is that Delta code place on Korean’s flights to Houston and San Francisco will help improve load factors on those routes.

Delta is better off working with Korean carriers than Chinese ones


The original strategy for Delta was to leverage SkyTeam partner China Eastern, based in Shanghai, as part of its long-term joint venture project. While that still may be in the pipeline, Korean Air makes a far better proposition over China Eastern for multiple reasons.

First, the two carriers are far more aligned in terms of product than Delta is with its Chinese carriers. Delta recently unveiled its new Delta One Suite to be featured on its Airbus A350 aircraft, which will more than likely be deployed on transpacific missions from its U.S. hubs. Korean Air introduced a new premium product in 2015 featuring enclosed suites in first class and direct aisle seats in business.

Secondly, Korean Air has been pragmatic about its network, cutting unprofitable routes like Sao Paulo in favor of Delhi and insuring it does not trade quality for quantity. China Eastern, while rapidly growing its network (especially in North America), has been notorious for flooding markets with capacity while neglecting to upkeep its soft and hard products at a competitive level.

Finally, Korean Air holds more assets than it gets credit for, with rights to four weekly U.S. – China slots as well as a plethora of services to 6th freedom Asian markets that China Eastern does not have.

Why buy the cow when you get the milk for free?


Delta’s relationships with some of its global partners – like Korean Air – has historically shared more traits of acrimony as opposed to harmony, rendering it challenging for either player to fully reap the benefits of traditional alliances.

At the end of the day, the benefits outweigh the costs, and such an agreement comes at a time of critical need for both carriers. Korean Air is witnessing its bread-and-butter sixth-freedom traffic being poached by growing Chinese carriers on transpacific routes, and worsening conditions in Latin America have stalled ambitions to expand its global reach.

On the other side of the spectrum, Delta is still waiting for its new Asian routes from Seattle to mature, while also encountering challenges with available terminal space at Sea-Tac airport.

Additionally, while the $450 million stake in China Eastern may be a sound investment over the long run, Korean Air brings similar advantages within a much closer window. It never hurts, either, to play favor with the #1 flag carrier in a relatively open aviation mega polis as opposed to the #2 or #3 in one that is still climbing out of isolation.

Nevertheless, there is certainly much room to evolve before the partnership enters a period of stable growth, but it is a huge step forward in terms of mending strained relationships that have existed far longer than necessary. Even as baby steps are taken, the decision is exceptionally sensible.

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7 Comments

  1. Bill Hough
    Bill Hough September 09, 13:09

    Over at ATW, Karen Walker makes the good point that DL is being two-faced by complaining about B6 getting US General Service Administration (GSA) federal employee travel contracts on routes flown on an EK code share while DL does the same thing on routes to Seoul operated by KE. DL is so blinded with its hatred of EK that it doesn’t see the hypocrisy.

  2. kris
    kris September 09, 22:46

    The difference is that there are no US airlines serving ATL-ICN. For the NYC-MXP there were 3 US airlines. IAD-DXB there was one US airline.

  3. Phoenix
    Phoenix September 10, 01:31

    So DL picks up its ball, goes home, sees a tiny semblance of sense?

    Great analysis as always Rohan. Are you and Vinay skipping the podcasts this week?

  4. Tim Dunn
    Tim Dunn September 10, 12:18

    Thanks for the article, Rohan, and the ideas they generate.

    1. The presence of a joint venture is not a sign of success nor is the absence of one an indication of failure. Joint ventures exist where two or more companies can jointly achieve their objectives and jointly share in the benefits where a JV exists. Virtually all of Delta’s entire transatlantic system is operated under joint ventures and those JVs cover far more than just the US and Europe. Further, Delta and AeroMexico are on the verge of forming an early and large JV in a region where there are few for US carriers.
    2. Joint ventures so far haven’t changed the competitive environment to East Asia even where they exist. Delta is still number 2 behind United and ahead of American in network size, average fares, cities served with its own metal. Even with a JV/JBA, American is a distant number 3 to Japan
    3. No carriers have been growing between the US and Japan and the gradual opening of Haneda is certain to continue if not accelerate that trend. Delta now has more mainland US to Haneda access than American or United and data for existing Haneda flights shows that Delta will very likely get a higher percentage of the local Tokyo market than American or United do or will because Delta has no obligation to feed partner flights beyond Haneda.
    4. Delta has said it will not grow Seattle international until the FIS is enlarged. Its use of 767s on many routes is undoubtedly a move to maintain its network with the smallest aircraft possible and minimize impact on the FIS. The LAX terminal expansion goes a long ways in providing the ability to open more west coast to Asia routes.
    5. Korean has a sizeable presence from secondary Japanese cities; Seoul is well-positioned to serve those markets to the US just as KLM effectively serves secondary UK cities.
    6. It is no secret that Delta and Korean differed because of Korean’s practice of carrying huge amounts of traffic between the US and China and of undercutting Delta from Delta’s major markets including Atlanta and New York. Korean couldn’t support two flights per day from Atlanta if it didn’t price its product well below Delta. Delta cut off US codeshares to Korean in part to prevent Korean from benefitting from the feed at Delta hubs. Korean also sees Delta and the industry’s growth of US to China capacity as a threat despite the fact that S. Korean airlines limited the ability of Chinese airlines to develop their networks. Delta’s statements that it wants to restart Atlanta to Shanghai is a threat to Korean in Atlanta that KE can’t ignore.
    7. Seoul Incheon is a great connecting airport but Delta’s lead in the local market is only strengthened with now three US to Seoul flights. Korean was obviously willing to give up some of its own capacity in order to allow Delta to grow. They clearly see far more value from gaining a large amount of feed in the US that they need to compete against other airlines and partnerships.
    8. Korean had no choice but to cooperate with American when the latter started DFW-ICN but when AA added LAX-GRU on top of Korean, the move could only be seen as American being willing to put its own interests above any potential partnership. Korean had no choice but to work with Delta or no one. Delta’s Atlanta hub provides very solid access to Latin America and Korean knows it needs to have a presence in that market segment.
    9. Korean is certain to face huge costs due to the shutdown of Hanjin shipping at a time when the transpacific airline business is under pressure. It is far more plausible to believe that Korean realized it needs to shore up its own airline business and run it for the best revenue generating potential at the expense of more lofty long-term principles.
    10. While Delta and Korean might have each recently reached the greatest need to work together and decided to cooperate with each other, Delta’s Pacific network is still ‘undergoing remodeling.’ It doesn’t hurt Delta’s dealings with other partners to know that Delta does have a credible means to grow its presence in the Pacific via increased partnership with Korean
    Delta and Korean increased their cooperation because it makes sense to do so. Even in its proposed form of codesharing, it will be one of the largest partnerships between a US and Asian carrier. If both sides benefit jointly by expanding the relationship, they will. It is not a failure or sign of weakness if they maintain a large codeshare relationship.
    Again, thanks for the article

  5. Shiritori
    Shiritori September 11, 10:24

    I had always thought that in terms of overall strategic alignment, post-bankruptcy JAL would have been the ideal partner for Delta across the Pacific. Delta was the original evangelist of capacity discipline in the US and even after restructuring, JAL continues to be much more conservative in route additions than either ANA or Korean (though much of that was historically due to government conditions imposed during bankruptcy).

    Conversely, Korean would be a natural fit for American. American has historically been the smallest of the Big 3 in the US-Asia market and they’ve had to grow organically to make up much of the difference in places like China, where they’re already at a disadvantage in terms of partnerships. That would be a good complement to Korean’s own aggressive overseas growth and their long-term challenges in the US-China market due to gradual liberalization and technological evolution.

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