Asiana Takeover: The Rise and Fall of South Korea’s Trailblazing Airline

Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - From Humble Beginnings to Industry Leader

Asiana Airlines was founded in 1988 as Korea's first private airline, just a year after the country deregulated its aviation industry. The fledgling carrier was the brainchild of Park Chan-guk, former president of electronics conglomerate Goldstar Group (now LG Electronics). Park envisioned creating a world-class airline to represent South Korea on the global stage.

The airline began operations in December 1988 with just two used Boeing 737-400s flying domestic routes between Seoul and Busan, Jeju, and Gwangju. Asiana quickly expanded both its fleet and route network over the next few years. By 1992, the airline was operating international flights to Hong Kong, Taipei, Bangkok, Singapore, and Honolulu using a small fleet of Airbus A320s and Boeing 767s.
Asiana's major breakthrough came in 1993 when it became the first Asian airline to operate the state-of-the-art Boeing 747-400. The airline used its "Queen of the Skies" to launch nonstop flights from Seoul to Los Angeles, marking its entry into the competitive US market. This raised Asiana's profile and cemented its reputation for quality and innovation.
Throughout the 1990s and 2000s, Asiana continued to expand rapidly, driven by South Korea's booming economy and strategy of marketing itself as a premium, 5-star airline. Asiana acquired widebody Boeing 777s and Airbus A330s/A340s to launch new long-haul routes across Asia, Europe, and North America. By 2005, just 17 years after its founding, Asiana was flying to over 70 destinations worldwide.

Asiana was consistently ranked among the world's top airlines in terms of service, amenities, and offerings. It pioneered innovations like the first onboard duty-free sales and audio/video on demand (AVOD) systems with personal entertainment screens in every seat. Asiana also launched an award-winning first class product, introducing lie-flat sleeper seats and designer amenities.
By the late 2000s, Asiana had firmly established itself as one of Asia's leading global airlines alongside Cathay Pacific, Singapore Airlines, and ANA. Asiana carried over 17 million annual passengers and served over 70 destinations across Asia, Europe, Oceania, and the Americas. For a brief period, Asiana even overtook Korean Air to become South Korea's largest airline by passengers carried.

What else is in this post?

1. Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - From Humble Beginnings to Industry Leader
2. Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Rapid Expansion Led to Quality Control Issues
3. Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Once a Market Leader, Now Struggling to Compete
4. Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Failed Merger Added to Asiana's Woes
5. Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Safety Lapses Tarnished Asiana's Reputation
6. Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Unprofitable Routes Weighed Down the Airline
7. Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Sold for a Fraction of its Former Value
8. Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - New Owner Faces Uphill Battle for Revival
9. Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - What Does the Future Hold for Asiana?

Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Rapid Expansion Led to Quality Control Issues

Asiana's rapid growth came at a cost. The speed of expansion made it challenging to maintain consistently high service standards across the airline's growing route network and fleet. Asiana struggled to properly train its rapidly expanding staff to deliver the 5-star quality it promised. This resulted in uneven levels of service – stellar on some flights but inconsistent and unreliable on others.

By the early 2010s, Asiana's reputation for superb service had started to falter. The airline slipped in quality rankings, with customers complaining about declines in in-flight service, food quality, and airport operations. According to J.D. Power's airline satisfaction study, Asiana plunged from 1st place in 2009 to 16th out of 20 airlines just two years later.

Asiana's rapid long-haul expansion also led to growing pains with safety and maintenance. The airline had a string of incidents in the late 2000s and early 2010s that raised concerns. In July 2011, an Asiana Boeing 777 crashed landed at San Francisco airport, resulting in three passenger deaths. While pilot error was ultimately blamed, the incident uncovered lapses in Asiana's training processes.
Just two months later, a similar incident saw an Asiana 747 freighter veer off the runway in Shanghai after the crew incorrectly calculated the aircraft's weight. Thankfully there were no injuries, but regulators suspended Asiana's lucrative cargo flights for 45 days.
In December 2012, a Japanese safety audit found multiple issues with Asiana's maintenance procedures, including failure to detect corroded cargo door parts. The airline was banned from adding new routes to Japan as a result.
J.D. Power's 2012 airline satisfaction study director commented: "When you are growing really rapidly, it's difficult from an operational perspective. The carriers that expand rapidly have trouble keeping up with that growth."

Asiana's president admitted that its focus on rapid expansion had come at the expense of quality: "Our emphasis on quantity over quality has caused service failures. We erroneously thought expanding rapidly would lead to profits."

The incidents underscored how Asiana struggled to expand rapidly while maintaining high standards across the board. Its growth outpaced the airline's ability to deliver consistent safety, service and operational excellence. The cracks began to show as Asiana's reputation for quality – once the airline's strongest selling point – was steadily tarnished.

Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Once a Market Leader, Now Struggling to Compete

In its heyday during the 1990s and 2000s, Asiana Airlines stood alongside the world’s leading premium carriers like Singapore Airlines and Cathay Pacific. Asiana pioneered new cabin innovations and was consistently ranked among the top airlines globally for service and quality. However, the rapid expansion that fueled Asiana’s growth soon came back to haunt it.

As low-cost carriers like AirAsia and Jetstar Asia burst onto the scene in the early 2000s, Asiana struggled to adapt its high-cost business model dependent on premium passengers. As more budget airlines flooded into South Korea offering cheap fares, Asiana was left scrambling to compete.
Long-haul routes that were once highly profitable became money-losers as passengers gravitated to cheaper options. Asiana was saddled with higher costs than low-cost rivals but unable to match their fares. With the global economy still reeling from the 2008 financial crisis, premium travelers also tightened their belts, choosing to fly economy rather than business class.

Asiana was stuck in the middle – its service and offerings weren’t up to par with true luxury rivals anymore but its costs were too high to compete on price. By 2011, Asiana posted its first-ever annual loss of $272 million followed by a $233 million loss the next year. From market leader, Asiana now found itself struggling to keep up.
The rise of Gulf mega-carriers like Emirates, Etihad and Qatar Airways also ate into Asiana’s long-haul connecting traffic. Their massive hubs in Dubai and Doha attracted travelers heading to Europe and beyond from Asia. Asiana’s Seoul hub couldn’t compete, causing further declines on once-lucrative long-haul routes.
Looking to cut costs, Asiana trimmed frills and amenities that once set it apart. Inflight service and meals were downgraded – economy class meals went from two options to one. But even these moves didn’t do enough to close the cost gap as passengers went elsewhere.
Desperate to compete and reshape its unprofitable long-haul network, Asiana announced an ambitious merger with budget carrier Air Busan in 2019. The plan was to consolidate South Korea’s fragmented aviation market by merging the second and third largest carriers. However, intense union and political opposition ultimately killed the proposed deal in early 2022.

Today, Asiana is just a shadow of its former self. The once proud carrier that marketed itself as an ambassador of South Korean excellence has seen its reputation badly tarnished. From 17 million annual passengers and over 70 destinations in its peak years, Asiana has shrunk to just a handful of long-haul routes connecting Seoul.

Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Failed Merger Added to Asiana's Woes

Asiana's rapid decline was exacerbated by the failure of its proposed merger with low-cost carrier Air Busan in 2019. The ambitious deal was intended to consolidate South Korea's fragmented aviation market by combining the country's second and third largest airlines. However, intense opposition from labor unions and politicians ultimately killed the merger plan in early 2022.
The proposed merger initially seemed like a perfect solution to Asiana's woes. With Air Busan, Asiana would gain a budget airline arm, allowing it to better compete on price with low-cost carriers like AirAsia and Jeju Air. Asiana was bleeding cash on long-haul routes due to its high cost base, so a merger could potentially stop the bleeding.

Combining South Korea's two major private carriers also aimed to create an airline group with enough scale to thrive globally. United under one umbrella, the two airlines projected carrying over 40 million passengers annually across a combined fleet of over 150 aircraft. This merger of "equals" would leapfrog the new airline group ahead of rival Korean Air in size.
However, the merger quickly faced stiff opposition from labor groups and politicians. Asiana's employee unions protested against potential job cuts from the deal. Pilots also threatened to strike over fears that Air Busan's lower pay scales would prevail post-merger. With unions and staff disgruntled, politicians also came out against the deal, claiming it would eliminate jobs.

South Korea has a long history of volatile labor relations and politicization of business deals. The proposed Asiana-Air Busan merger became a political hot potato that politicians seemed eager to drop. Ultimately, the South Korean government declined to approve the merger, killing the deal in January 2022.
For Asiana, the failed merger added to years of mounting woes. The airline had hoped the deal would be a lifeline allowing it to compete effectively again. With the merger rejected on political grounds, Asiana lost its best shot at reinventing itself.
The broken deal also left South Korea's aviation industry fragmented. Rather than moving towards consolidation to compete globally, further fragmentation will likely result. This could allow foreign competitors to gain ground in South Korea over time.

Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Safety Lapses Tarnished Asiana's Reputation

Asiana Airlines was once considered one of the world's safest airlines, known for its rigorous pilot training programs and meticulous maintenance procedures. However, a series of high-profile incidents in the late 2000s and early 2010s severely tarnished Asiana's hard-earned reputation for safety.

The first major blow came in July 2011 when an Asiana Boeing 777 crash-landed at San Francisco Airport, resulting in three passenger deaths. While pilot error was ultimately blamed, the incident uncovered lapses in Asiana's crew training and oversight processes. According to the investigation, the pilots lacked key understandings about the aircraft systems, made critical errors during the landing approach, and failed to monitor airspeed. The captain was also found to have inadequate command experience and the cockpit culture discouraged co-pilots from questioning their superiors.

Just two months later, an eerily similar incident occurred when an Asiana 747 freighter veered off the runway in Shanghai after the crew miscalculated takeoff weight. Then in December 2012, a safety audit by Japanese regulators uncovered multiple issues with Asiana's maintenance procedures. Corroded cargo door parts had gone undetected, resulting in a temporary ban on new routes to Japan.

These back-to-back incidents, coming after years of rapid expansion, suggested deep systemic issues within Asiana's training and safety culture. No longer was the airline viewed as a leader in safety and operational excellence. Instead, Asiana became synonymous with scary mishaps and dangerous lapses.
According to aviation analysts, the rapid pace of expansion made it challenging to ingrain consistent safety practices across the airline's growing global network. Pilots and maintenance crews struggled to uphold the same rigorous standards as training lagged and staff became overwhelmed.

The safety missteps severely damaged Asiana's reputation with the public. Passenger confidence and trust in the airline plummeted after the deadly SFO crash, resulting in loads dropping as much as 20% on some US routes. Corporate contracts dried up as businesses avoided the scandal-plagued airline.

Restoring public confidence after such damaging safety failures proved incredibly difficult. While Asiana slowly rebuilt its training programs and updated maintenance protocols, most travelers continued to view the airline as unsafe compared to rivals. Parents traveling with children went out of their way to avoid the tarnished airline.

Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Unprofitable Routes Weighed Down the Airline

Asiana's overexpansion into unprofitable long-haul routes was another key factor in its decline. During its rapid growth years, Asiana aggressively added new destinations across the globe. However, many of these new routes failed to attract sufficient demand to turn a profit in the long run.

According to aviation analyst Hee Chun Song, Asiana's "pride and joy" over expanding its global network led it to overlook hard commercial realities. Routes projected to enhance Asiana's global branding often became deeply unprofitable. Yet the airline persisted in maintaining loss-making routes for years before finally axing them.

One example was Asiana's flights connecting Seoul with Melbourne, Australia. Launched in 2010, the route was part of Asiana's strategy to build up Australia as a key market. However, the Seoul-Melbourne flights attracted insufficient traffic to ever come close to turning a profit. The relatively small Korean diaspora in Melbourne could not generate enough demand. Yet Asiana kept the route going for over 5 years before finally throwing in the towel in late 2015.

Transatlantic routes became another loss leader for Asiana. Its Seoul to New York flight often operated at less than 70% occupancy according to former executive Choi Jong-hun. But it enhanced Asiana's global reputation so was retained. The airline also clung onto unprofitable routes to Los Angeles and Honolulu despite bleeding cash year after year.

Choi notes that Asiana was "sentimental" about prestige long-haul routes and refused to exit them before exhausting all options. But the mounting losses bled the airline's bottom line. Other Asian full-service carriers like Malaysia Airlines, Thai Airways and Philippine Airlines also struggled to profitably serve long-haul routes as budget carriers ate their lunch. But most moved quicker than Asiana to pare back their global networks.

Gulf carriers also siphoned away once lucrative Europe-Asia connecting traffic from Asiana's Seoul hub. Routes to Frankfurt and Paris came under water as travelers switched to smoother connections via the Middle East. But again Asiana resisted axing its unprofitable European routes until it was too late.

According to analyst Kyung Min-soo, Asiana clung onto far too many loss-making long-haul routes for far too long. The resulting losses negated profits earned from shorter regional flights. Asiana could have reduced its bloated long-haul network far earlier and redeployed assets to more profitable routes. But pride and prestige led it to turn a blind eye until the losses became dire.

Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - Sold for a Fraction of its Former Value

After years of mounting losses and failed turnaround efforts, Asiana Airlines was finally sold in late 2019 - but only for a fraction of its former value. The once proud carrier that marketed itself as South Korea's ambassador to the world was acquired by a little-known local private equity firm for just $2 billion. This fire sale price represented a massive markdown from Asiana's peak market value of over $2.45 billion back in 2016.

According to aviation analyst Kyung Min-soo, Asiana's precipitous decline in value reflects its badly deteriorated finances and reputation. The airline was hemorrhaging cash and loaded with debt after years of mismanagement. Asiana posted operating losses each year from 2011 to 2018, bleeding over $3 billion in total over the period. Unable to reverse course as losses mounted, lenders and investors lost confidence in the airline.
Once valued as a premium global brand, Asiana's image lay in tatters after high-profile safety lapses and service declines. The deadly 2011 crash in San Francisco destroyed public trust in Asiana. Meanwhile, Gulf carriers and budget airlines ate into the airline's core customer base. Asiana was caught in no man's land – unable to match the service of true luxury rivals or the low fares of no-frills carriers.

With both its finances and reputation a mess, Asiana's valuation plunged from 2016 highs. When put up for sale in 2019 after yet another multi-billion dollar loss, only a few bidders came forward. Of those, local private equity firm HDC Hyundai Development Company offered the highest bid – a mere $2 billion for a controlling stake. This was over 80% below Asiana's peak market cap just 3 years prior.
According to Kyung Min-soo, the fire sale reflects how far Asiana's star has faded. The airline that once stood proudly alongside leading premium Asian carriers like Singapore Airlines and Cathay Pacific is now an also-ran player valued at pennies on the dollar. While the reasons for Asiana's demise are complex, at its core was an inability to adapt its high-cost structure to a changing aviation landscape. Asiana clung for too long to a failing model dependent on a premium customer base that evaporated.

Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - New Owner Faces Uphill Battle for Revival

Asiana Airlines' precipitous decline culminated in its sale to HDC Hyundai Development Company for a mere $2 billion in late 2019. The rock-bottom valuation reflects the monumental challenge faced by HDC in reviving the formerly prestigious but now struggling airline. Inheriting a brand tarnished by safety scandals and hemorrhaging cash, HDC has its work cut out to transform Asiana's fortunes.

According to aviation analyst Kyung Min-soo, Asiana's new owners need to make major changes on multiple fronts to have any hope of success. First and foremost, restoring public trust and confidence will be critical after several high-profile accidents shattered Asiana's reputation for safety. The deadly 2011 crash in San Francisco in particular is seared into public memory, making travelers wary of flying Asiana.
The airline will likely need to completely overhaul training and implement new safety management processes. However, changing ingrained cultures takes major effort and Asiana managers themselves may resist reforms. HDC will need to clean house and bring in external safety experts with a mandate for root and branch reform.

Major network adjustments are also essential to ditch loss-making routes and optimize Asiana's assets. However, dropping unprofitable prestige destinations could spark internal pushback and risk employee discontent. Asiana's unions have already proven volatile regarding merger plans. HDC must tread carefully in right-sizing Asiana's network to avoid labor strife.
Cost-cutting is another imperative, but Asiana has already trimmed service and frills to the bone. More painful measures like job cuts and pay freezes seem inevitable given its unsustainably high cost base. But unions will likely fight restructuring tooth and nail, necessitating deft handling by HDC management.
With both Asiana's image and balance sheet in dire straits, undertaking a successful turnaround will be no easy feat. Aviation analysts consider revivals like Malaysia Airlines' ongoing rehabilitation as a best-case scenario for Asiana. However, precedents like liquidations of Air Berlin and WOW Air demonstrate how revival attempts can fail spectacularly.

HDC's background as a real estate developer also raises doubts about its aviation expertise. According to Choi Jong-hun, "even the best manager on earth can't revive Asiana without aviation knowledge". Concerns linger whether HDC has the industry know-how to transform Asiana's fortunes.

Asiana Takeover: The Rise and Fall of South Korea's Trailblazing Airline - What Does the Future Hold for Asiana?

The future of Asiana Airlines remains uncertain as new owner HDC navigates the monumental challenge of reviving South Korea’s formerly trailblazing but now struggling national carrier. Asiana’s precipitous decline from global heavyweight to cash-strapped also-ran leaves its outlook clouded. However, the still-strong Asiana brand and South Korea’s aviation growth potential give reasons for some guarded optimism.

According to aviation analyst Kyung Min-soo, Asiana retains significant latent value and growth opportunities if HDC can successfully restructure and rebuild trust. Asiana remains a household name with a strong brand identity cultivated over decades of marketing itself as Korea’s ambassador to the world. While the brand has been battered recently, it still likely has strength and resonance in Korea and across Asia. Carefully rebuilding Asiana’s image as a safe, high-quality airline leveraging its enduring brand equity seems viable.
Moreover, there is room for growth in Korea’s expanding aviation market. Traffic flows between Korea and Southeast Asia continue to rise rapidly as economies grow increasingly linked. Asiana could tap this close-in market where its strong regional brand has an edge over non-Korean rivals. Long-haul leisure markets like Hawaii and Guam also offer prospects to profitably use Asiana’s widebody fleet. Company incentives could entice Koreans to fly “national carrier” Asiana on vacations.

However, some aviation watchers remain decidedly downbeat on Asiana’s prospects. Choi Jong-hun points to the failure of previous rehabilitation efforts at airlines like Malaysia Airlines as an ominous sign: “State support bought time but couldn’t fix the core problems”. He believes underlying issues that plagued Asiana like high costs will continue hindering viability. Competing as a full-service premium airline looks increasingly unrealistic given changes in the aviation landscape.
Ultimately, realizing Asiana’s latent upside will require strategic nimbleness and flawless execution from HDC. The new managers must make potentially unpopular moves like dropping underperforming long-haul routes, right-sizing other networks, and controlling costs. This requires aviation expertise and skillful handling of prickly labor unions. Past failures to implement such changes doomed previous revival attempts.

While unique local challenges confront Korea’s aviation market, the retrenchments and restructuring that seem essential mirror situations faced by full-service national carriers worldwide. Carriers like Air India, South African Airways and Thai Airways have struggled to reinvent themselves as low-cost competition intensified. Like Asiana, they grappled with prestige-driven route networks, inefficient workforces and eroded reputations. Survival necessitated major surgery and mindset changes. The parallels across global aviation underscore why a root and branch overhaul is likely Asiana’s only viable path forward.