Asiana's Crisis: how it falls into bankruptcy?

Kumho has started the process to sell its largest part, Asiana Airlines, according to Credit Suisse. Holding 31% of Asiana's stocks, Kumho has Asiana contributing two thirds of its revenue income.

But, why? The first look at Asiana's location, Asia Pacific, does not give anybody the impression that it is a company surrounded by debt. However, Asia Pacific is a highly competitive market segment for airlines. Here in the following paragraphs, I will analyze why this is the case that Asiana failed to maintain a robust financial report.

Asiana is located in a good place

One of Asiana's most important market is the transit between Asia and America. As China and Southeastern Asia' economic boom has brought them with wealth and emerging needs for oversea travelling, Asiana did enjoyed the revenue from providing connections between China and United States.

Actually, Seoul Incheon (ICN), Asiana's hub airport, is among the best position on Asia-America transferring. For most destination in China and Southeastern Asia, the detour rate is less than one percent, much better than Tokyo and Beijing, where its major competitors (Japan Airlines, All Nippon Airways and Air China) are.

Detour rate San FranCISCO Los Angeles New York Chicago
Shanghai, Eastern China Seoul 0.31 Tokyo 1.47 Beijing 7.25 Seoul 0.31 Tokyo 1.29 Beijing 6.93 Seoul 0.32 Tokyo 6.34 Beijing 1.72 Seoul 0.07 Tokyo 4.72 Beijing 2.89
Beijing, Northern China Seoul 5.2 Tokyo 9.15 Beijing 0 Seoul 4.89 Tokyo 8.49 Beijing 0 Seoul 9.23 Tokyo 18.10 Beijing 0 Seoul 8.14 Tokyo 15.59 Beijing 0
Guangzhou, Southern China Seoul 0.09 Tokyo 0.83 Beijing 2.66 Seoul 0.11 Tokyo 0.69 Beijing 2.58 Seoul 1.84 Tokyo 7.14 Beijing 0.01 Seoul 0.79 Tokyo 4.77 Beijing 0.14
Chengdu, Southwestern China Seoul 2.32 Tokyo 5.56 Beijing 0.15 Seoul 2.19 Tokyo 5.16 Beijing 0.15 Seoul 9.93 Tokyo 17.85 Beijing 3.65 Seoul 7.31 Tokyo 13.82 Beijing 2.21
Singapore Seoul 0.97 Tokyo 0.03 Beijing 2.97 Seoul 1.07 Tokyo 0.07 Beijing 3.02 Seoul 2.45 Tokyo 5.52 Beijing 0.84 Seoul 0.64 Tokyo 2.53 Beijing 0.02
Bangkok Seoul 0.03 Tokyo 0.99 Beijing 0.47 Seoul 0.02 Tokyo 0.83 Beijing 0.47 Seoul 5.80 Tokyo 10.98 Beijing 2.49 Seoul 3.09 Tokyo 6.98 Beijing 0.85

The coverage of Asiana in Eastern Asia is large enough. Considering with Asiana's Skytrax 5-star service, it is hard to imagine that Asiana has failed in the competition.

However, things happen.

Failure at Japan: Reinternationalization of Tokyo Haneda

Korean Airlines, including Asiana and Korean Air, benefited from Japan's policy of separated Hubs in Tokyo: Narita and Haneda.

Haneda Airport is the second busiest airport in East Asia, only after Beijing Capital. Before the commencement of new Terminal and Runway in 2010, Ministry of Land, Infrastructure, Transport and Tourism (国土交通省), Japan's civil aviation authority, assigned that Haneda shall not fly scheduled international flights, to save slots for Domestic needs to Japanese Capital. At that time, only flights from Seoul Gimpo, Taipei Songshan, and Shanghai Hongqiao were allowed to land at Haneda.

This regulatory limitation makes residents of other cities has to move between Haneda (where their domestic section is at) and Narita (where there international section is at) to transfer. This is because Narita Airport, where most of international routes are handled, does not has sufficient domestic connections. Such a connection takes around one to two hours, and it is frustrating especially for family travellers. This embarrassment allows Korean Airlines to participate in the market on routes origining from Japan, especially those to Europe.

Another advantage is the subsidiary from Japanese local governments, which provided subsidiary to carriers that provide directed connections to foreign cities to encourage peoples to visit their cities and towns. By offering flights from towns to Seoul, Asiana qualified for such subsidiary.

When Haneda airport announced the construction of its new runway in 2007, Asiana's executives made an optimistic assumption that such construction are for the growing domestic needs. However, when unveiling the terminal construction plan in April 2008, MLIT announced that Haneda would start handling intercontinental routes during night, when Narita cannot handle such flights due to noise-annexing curfew. Two months later, Lehman Brothers's bankruptcy had raised the financial crisis, making the needs for international travelling shrink significantly.

Such announcement changed how Japan Market works. On one aspect, Japanese travellers are back to ANA and JAL for their connections offered in Haneda after the opening of international facilities in 2010; on the other one, Japanese governments shut their subsidiaries to provide assistance to those companies impacted by Lehman Crisis.

In 2016, Asiana had moved half of its eighteen destinations in Japan to its low-cost subsidiary, Air Seoul. Now it only operates at nine destinations itself, all of them are large cities with tourists.

Korean have to look for another market. This time, it is China.

Failure at China: Accident and Politics

China's culture and ethical connections with South Korea has contributed to Asiana's China coverage. Korean, South Korea's majority ethic group, is one of the 55 minorities in China, residing majorly in Northeastern China. South Korea also has a lot of foreign investment in China, especially its Shandong and Liaoning Provinces.

Asiana has 23 destinations in China, most of them are either large, rich cities with rapidly-growing middle-classes, or cities with strong cultural and economical connections with South Korea. In contrast, ANA, its Japanese competitor, only has eleven destinations. Korean Air has 21, and JAL only has eight.

  • Large Cities: Beijing, Shanghai, Guangzhou, Shenzhen, Hong Kong, Changsha, Chengdu, Chongqing, Guilin, Hangzhou, Nanjing, Taipei,
  • Cities with Korean Investments: Dalian, Xi'an, Harbin, Changchun, Qingdao, Shenyang, Tianjin, Weihai, Yancheng, Yanji, Yantai.

At 2011, Asiana did plan to provide service from China to America, and they purchased A380s to handle their estimated needs.

However, the optimistic expanding of Asiana unveiled its lack on flight crew's cockpit resource management (CRM) and its shortage on experienced pilots, in an unexpected way: on July 6th, 2013, Asiana 214 crashed when landing at San Francisco (SFO/KSFO). FAA's report has unveiled that both the pilot (trainee) and first officer (trainer) were both first-time rookie.

Three Chinese teenager's death and Asiana's ridiculous training procedure had shocked Chinese parents who were planning oversea visits with their children, forcing them to reconsider the carrier to fly.

Another thing that significantly affected Asiana is the Sino-South Korean relationship, which has been significantly impacted due to . South Korea generally are good with China, however, its Northern neighbor, North Korea, has attracted international concerns due to its ambitious nuclear project. South Korea's worries over North Korea's missiles led to the deployment of THAAD anti-missile system in 2016. China considered it the sniffing over China's missile deployment, when South Korea defeated that it is only for Northern threat.

South Korea underestimated the China's Patriotism: the boycott over Korean products and services, including Asiana and Korean Air, had spreaded over China that stopped Asiana's plan to reconstruct the confidence towards its service.

Korean have to look for another market. This time, it is Southeast Asia.