▶ Interest in miles integration is increasing
▶ The exchange rate must be approved by the Korean government
The amount of unused miles on Korean Air and Asiana Airlines has reached around KRW 3.5 trillion (about US$2.7 billion) in the first half of this year as the companies continue their merger process. As the two airlines increase the supply of mileage seats, the number of passengers using miles to purchase airline tickets is steadily increasing.
According to the Korea Financial Services Agency’s electronic disclosure system on June 19, Korean Air’s deferred mileage revenue as of the end of June was KRW 2.5278 trillion, while Asiana Airlines’ deferred revenue was KRW 975.8 billion. The combined deferred revenue of the two companies is KRW 3.5486 trillion.
Deferred revenue refers to revenue that is not yet recognized as revenue at the time of the first sales transaction, but is only later recognized when the mileage is used. This deferred revenue indicates the amount of cumulative mileage.
Compared to the same period last year, Korean Air’s deferred revenue increased by 4.5% and Asiana Airlines’ deferred revenue increased by 3.5%.
The companies said the increase in deferred revenue was due to the extension of the mileage expiration period by up to three years during the COVID-19 pandemic, when flights were restricted. For both companies, the validity period for miles earned after July 2008 is 10 years. Compared to the end of the first half of 2019, before the pandemic, Korean Air’s deferred revenue increased by 15.2% and Asiana Airlines’ increased by 38.3%.
In contrast to the increase in unused miles, the number of customers using miles to purchase airline tickets has steadily increased. Both airlines reported an increase in “Bonus Passenger Kilometers” (BPK), a metric that estimates the use of mileage seats. BPK is calculated by multiplying the number of passengers using mileage tickets (bonus passengers) by the flight distance and adding the total.
In the first half of this year, Korean Air’s BPK was 4.107 billion km, up 8.8% from the same period last year and 32.1% from the first half of 2019. Asiana Airlines’ BPK was 1.7 billion km, up 26.4% from the same period last year and 28.4% from the first half of 2019. Although the passenger recovery rate (for international flights) in the first half of this year is 85% for Korean Air and 81% for Asiana Airlines compared to the first half of 2019, the BPK increased, the companies stressed.
The biggest concern for customers of both airlines is how the mileage policies will change after the merger. Depending on the integration method and conversion rate, customers could suffer financial losses. Of course, Asiana’s mileage customers are hoping for a 1:1 conversion rate.
A Korean resident in Los Angeles said, “I have earned 40,000 miles on Asiana Airlines, and it would be very unfair if the mileage conversion favored Korean Air customers. Asiana Airlines customers have done nothing wrong, have they?”
However, Korean Air has stated that there will be no immediate changes to the mileage business even after the merger with Asiana Airlines. Korean Air plans to operate Asiana Airlines as a separate company for two years even after the acquisition. During this period, the conversion rate for unused miles will be determined by Asiana Airlines after a review by the Korea Fair Trade Commission.
Hongyong Park>
