Delta and Korean Get Ready to Flex Their Joint Venture Muscles

Delta, Korean Air

It seems like we’ve been waiting for this for a long time. First we heard the news that the long-frosty relationship between Delta and Korean had begun to thaw. Then we heard that the airlines planned to create a joint venture. Now, regulatory approval has been received on both sides of the Pacific, so it’s time to hit the accelerator.

Both United/ANA and American/JAL have had years to refine their partnerships over the Pacific, but they haven’t gotten nearly as far as you might expect. Delta and Korean should have also shacked up years ago, but a disagreement between the two led to some frosty years. Not only did they fail to form a joint venture, but they also cut back their frequent flier partnership and scaled down codesharing.

I’ve written here about Delta’s Pacific perils at the ever-shrinking Narita hub. But now it’s time to stop talking about shrinking and start focusing on what this partnership can mean.

To start, Delta says there are four things coming soon.

1) Implement full reciprocal codesharing on each other’s networks and work together to provide the best travel experience for customers between U.S. and Asia
The two airlines have already started to ramp up codesharing significantly since the relationship began to thaw, but I imagine they’ll now expand it even further into smaller markets that may not have the code today.

2) Offer improved reciprocal loyalty program benefits, including providing customers of both airlines the ability to earn more miles on Korean Air’s SKYPASS program and Delta’s SkyMiles program
SkyMiles members, rejoice. Despite the warming relationship, the frequent flier partnership has remained frigid. Delta SkyMiles members, for example, earn 100 percent of miles for premium cabin and full fare coach on Korean-marketed flights. Mid-level coach fare classes earn 50 to 75 percent, and lower fares earn nothing. But most importantly, Delta frequent fliers can earn NO medallion qualifying miles at all when they fly Korean-marketed flights. That has been a huge reason for the most important Delta fliers to avoid Korean. This ridiculousness can’t end soon enough.

3) Begin implementing joint sales and marketing initiatives
This may not sound like much, but it’s incredibly important. Don’t forget that Korean is a beast when it comes to Transpacific flying with a ton of flights to more than 10 cities in the US and Canada. It has a sales organization in the US, but it’s still limited in its ability to push sales and marketing efforts beyond big cities. Likewise for Delta, it has a presence in Japan and in a couple other cities, but Korean is much stronger in Asia.

This isn’t just about knocking on doors. This means Delta and Korean can offer joint commission incentive agreements to travel agencies. With joint pricing they can really flex their muscles. American and United have done this with their partners over the Pacific for years, and now Delta can do the same.

4) Increase belly cargo cooperation across the trans-Pacific
It’s easy to underestimate cargo, but cargo is important. Working together on the cargo side should work the same as it does on the passenger side, possibly having an even bigger impact.

Now the question is… how close do Delta and Korean get, and how quickly can they get there? Unlike over the Atlantic, the Transpacific joint ventures haven’t grown as tight so far. Think about American and British Airways or United and Lufthansa. They’re thick as thieves. But over the Pacific, the relationships have remained more distant. Why? There could be a lot of reasons. It could be cultural differences, or it could be that some airlines are more focused on their home markets instead of thinking globally. Whatever the reason, this means Delta and Korean have an opportunity.

If Delta and Korean are able to forge a relationship even remotely near what Delta has with Air France/KLM, then they’ll quickly become a leader over the Pacific. They both have every incentive to try to achieve that, and now that government approvals have been received, it’s time to show what they can do.

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23 comments on “Delta and Korean Get Ready to Flex Their Joint Venture Muscles

  1. Question. When I look at flights on the Delta site, and a KE option pops up – say JFK-ICN-BKK – it does have a number there for estimated MQM. Do I not get them? Do I only get them if it’s a Delta-ticketed flight? Do I start getting them soon? Because DL doesn’t fly to Asia from JFK, and that extra hop to DTW is annoying.

    1. Flight operated and marketed by DL earn full benefits i.e. DL 27
      Flights operated by KE but marketed by DL earn full benefits i.e. DL 1001
      Flights operated and marketed by KE ticketed by DL follow the table (curently no MQM)
      Flights operated and marketed by KE, ticketed by KE, earn on skyteam partner based on distance. No MQM

      All Korean Air marketed flights, even if ticketed by Delta (ticket number begins with “006”), are not eligible for Medallion Qualification Dollars (MQDs).

      1. Note that as of this year, ticketing carrier doesn’t matter — KE code earns based on the KE table as a percentage of distance flown regardless of what the ticketing carrier is. Delta just can’t keep themselves from continually tweaking the system.

  2. I don’t recall all the details of the DL/KE saga but curious if this is a sign of Delta recognizing it can’t go it alone across the Pacific. Domestically they certainly have an arrogance from running fantastic ops. I’ve always felt that led to them being difficult with Korean. I have no doubts a more humble DL can use partnerships to best their competition. This should be interesting…and hopefully good for competition going east.

    1. I do think there was DL arrogance when they poked KE. But I think now is less of “go it alone” and more of changing dynamics. Go it alone is no longer feasible with changing Tokyo situation. As a response to opening of HND slots to US, the other 2 US airlines can consolidate Japan ops at a more desirable airport. Pair this with SEA growth and DL’s NRT hub starts to fall apart. So DL needs a strategy for a growing Asia market. Alone at NRT is a disadvantage, no partners at HND left, China still challenging with regulation, cultural differences, and geography. KE becomes the only real choice left. If JV is done right, huge benefit for everyone.

      Don’t forget, DL is not shy about having partnerships — but they do care that the partnerships bring profits (vs. generic traveler choice)

      1. No one knows for sure what takes place behind closed corporate doors, but reports were that original proposals from KE involved them having a disproportionately large share of the JV because they did not want to include DL’s Japan operation. KE was well-known to be aggressively discounting from JFK and LAX to Asia in the very same markets that DL was operating its own services via NRT. That is the reported reason why DL cut mileage benefits on KE metal.

        Remember also that KE is deeply in debt and their business is being hurt by growing Chinese airlines.

        DL and KE might have both had reason to hold out for a better deal based on their size in the market (no other two airlines in a JV are as closely sized as DL and KE) but ultimately both came to the conclusion they needed each other and, more importantly, they could do more together than they could accomplish separately.

    2. A – I think the big change here is that Richard Anderson is gone. Ed Bastian has had a long relationship with the Korean folks, and the relationship warmed up soon after he took over.

  3. The primary difference between Delta’s JVs and those of AA and UA is that all of Delta’s are profit sharing models, while most (if not all) of the others are revenue sharing. This leads to much higher degrees of cooperation between Delta and its partners. Look for the same with Korean. This is going to be pretty explosive, IMHO. The AA/JL and UA/NH relationships are highly constrained for the above reason, along with splitting traffic between two Tokyo airports and just having less overall North America capacity to the hub(s).

    Also, I believe DL and KE haven’t already improved the FF cross benefits because that was one of the claimed benefits of the JV to the respective authorities. If they did it beforehand, that wouldn’t be the case. Regardless, I expect a slow rollout of the partnership because this is new to Korean and systems/policies/procedures will have to be implemented. And they aren’t the fastest-moving company in the first place.

    1. I wouldn’t be surprised if a nontrivial part of the AA/JL and UA/NH gap also comes down to JL and NH (justifiably) looking down on the products of their American partners. If I were an NH marketer I wouldn’t be all that thrilled about selling my customers on the idea of getting excited to fly AA metal.

      It’s possible KE also feels that way to a degree, but if they do they would have much less justification for it, between DL generally offering a better product than AA/UA and KE mostly offering a worse product than JL/NH.

  4. You are absolutely right, CF, that the DL-KE joint venture has enormous potential. Even though DL and KE are the 2nd and 3rd largest airlines across the Pacific, they have very little overlap between their route systems. Only two cities – ATL and SEA – have duplicate DL and KE routes while some hubs such as SLC have no current transpacific service.
    In contrast, AA/JL and UA/NH have limited potential to grow their networks under the JV. Both have Japanese carriers for partners even as the Japanese government has tried to consolidate international operations at HND over a lengthy period that renders Tokyo less effective as a transpacific connecting hub.

    It also is worth noting that China and Hong Kong are not part of this or any other US carrier JVs because the US and China do not have Open Skies. When you take out China and HKG from AA and UA’s route networks, DL and KE quickly jump to the top of the list among Asia-Pacific regions that can benefit from joint ventures.

    Since summer 2018 schedules are already set, DL and KE will likely focus the next year on integration and then start to rollout new routes in 2019 just as the 777s get the new Delta One Suite. Soon after the A330-900NEOs start arriving giving the capacity to expand its Pacific network. At the same time, KE will have increased access to the region’s best hub facilities at ICN.

  5. NO THANK YOU!  The idea of ‘gate waiting’ even for an hour nearby The 38th Parallel [and 10,000 artillery guns, rockets, bombs, and millions  of Norko garlic-eating troops] doesn’t sound inviting. Norman Wherrettaka  A Kindred Spirit

    1. NRT won’t end as a transpacific hub for anyone until HND is opened further. While it is possible that Delta could move its current beyond NRT flights, MNL and SIN, to ICN, I’m not sure that DL Is willing to operate the size aircraft necessary to compete in that market. The 330-900 could change that if KE is willing to see DL operate beyond ICN. It is also likely that DL sees the need to be in those 2 markets with its own metal. I’d be surprised if DL pulls its own metal out of MNL and SIN.
      As long as the Japanese gov’t limits access to HND, DL has no choice but to keep some of its Tokyo operation at NRT – currently HNL, SEA, PDX, DTW and ATL. That is too much of DL’s Japan network to walk away from and if they operate that many flights at NRT, it isn’t too difficult to continue to keep MNL and SIN as beyond NRT flights.
      I am guessing that DL will eventually operate MNL and SIN nonstop from the US but they can continue to justify keeping service via NRT for now.

    2. MK03 – Delta is definitely shifting toward flowing traffic over Incheon, but I agree that it probably can’t kill Narita entirely until Haneda opens up… eventually. There’s just not much left there either.

  6. KE has a very strict own-metal rule: at least 60-67% should be KE-coded to become the Morning Calm, the lowest tier. Unless DL flight is counted, no DL MQM for KE flight is just fair.

  7. Hey cranky, I the light of this how about an article about the differences between ICN and GMP. I’ve only flown into Seoul once, ICN, but GMP is a lot closer but only has short haul international.

    Is it like HND vs NRT or something different?

    1. Ed – Well, it’s sort of similar in that Gimpo was the original airport, it wasn’t big enough, so they built a new one to take over. That’s Incheon.
      But while Narita was built decades ago, Incheon was built in 2001, and it only continues to grow. The international flights from Gimpo are very regional – focusing on Shanghai, Tokyo, Beijing, Taipei. But that doesn’t mean it can’t eventually grow. I don’t think there’s likely to be the kind of back-sliding we see at Haneda. Haneda is just massive with more than 75 million passengers a year, it’s double the size of Narita. Incheon is at something like 60 million and that’s more than double Gimpo. Haneda has a ton of capacity (and 4 runways) while Gimpo doesn’t have the same capability with only 2.

  8. that’s quite a bit kool-aid someone drank to write this “article” that’s more like a marketing press release.

    DL flies to ICN from what? 3 hubs (SEA DTW ATL) ? UA flies to NRT from *all* 7 of their CONUS48 hubs, including all 5 of the Top 5 largest population centers in the US (NY, LA, CHI, WAS, SF).

    UA GSes and 1Kes can use their GPUs on NH. last time I checked, DL Diamond global certs can’t be used on KE.

    1. Obviously, Diamond global certificates are used by a small subset of passengers but even if they are more significant, the final approval was given THIS WEEK. There is plenty of time for DL and KE to decide what they want to harmonize and it is possible that Global certs aren’t one of them.

      It is perhaps just as significant that DL manages to still fly to Tokyo from 7 US gateways including Hawaii despite not having a Japanese partner.

      It is also worth noting that, as DL’s relationship with KE has deepened, UA’s presence in S. Korea has shrunk.

      Delta STILL flies to destinations in Asia from Tokyo while UA has ended not just its beyond Tokyo service but also beyond Asia from other Asian cities.

      Most of what UA has added to its Asia network has been very long haul flights on 787-9s such as to SIN which are likely not profitable given that there are very low fares available.

      It is also worth noting that DL is the only N. American airline that has retained 9 abreast coach seating on its 777s and has wider coach seats on all of its international widebody fleet than AA and UA have on their 777s or 787s. KE also has above industry-average space on its longhaul international fleet just as JL and NH do.

      It is very possible that DL and KE will be able to appeal to a segment of customers for whom comfort is a high priority and the sum of the revenues from those passengers is worth more than the very few very premium customers that might have to use Delta in order to redeem their Global certificates. Do you realize that Delta gets a higher average fare from the Continental US to NRT than UA and AA do which goes against all logic of what a partner and larger size should do to average fares?

      And finally, there is a very strong likelihood that DL will be adding several more gateways to Seoul both on its own metal and also via KE. The economics of many of those flights will be very strong under a JV and will burn 2/3 of the fuel that UA burns flying to the end of the Pacific Rim. LAX is certainly one of those cities since Delta has already said that putting its own metal into the LAX-S. Korea market is a priority.

      Delta will end up with a higher passenger and revenue share of the US-S. Korea market while giving up less of the local Japan market which is perhaps the best measure of how effective the JV will be.

    2. Uh, SF metro is 4.7 million, Detroit metro 4.3 (pretty close) and Atlanta metro 5.7 million not to mention all the connecting opportunities at the Delta hubs including Seattle so it’s not such a stretch to think DL could carry a lot of pax over the pacific

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