Following a string of incidents involving the misconduct of members of Korean Air’s owner family, employees from the country’s largest air carrier are unable to mask their cynicism.
“This too shall pass — somehow — is what we all think,” a Korean Air flight attendant told The Korea Herald, referring to the latest allegations surrounding Lee Myung-hee, wife of Hanjin Group Chairman Cho Yang-ho, and their two daughters Cho Hyun-ah and Cho Hyun-min. Hanjin is the holding company of Korean Air and Hanjin Shipping.
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| Korean Air employees stage a protest demanding the owner family’s resignation in Gwanghwamun on May 4. (Yonhap) |
“Employees are now cynical about the ongoing investigations and their soulless apologies. We do not think that the prosecution will take punitive actions,” the flight attendant added, asking to remain anonymous. She has been working for Korean Air for nearly 20 years.
They were not so bitter several years ago, when the infamous “nut rage” incident involving Cho Hyun-ah broke out in 2014, according to the flight attendant.
“(At the time), we were all at first surprised and upset to learn that Cho Hyun-ah could completely ignore regulations as well as the safety of passengers.”
In 2014, Cho was jailed for five months for ordering a Korean Air plane to return to the gate at a New York airport because she did not like the way a pack of macadamia nuts were served in first class.
But it took four years for the Ministry of Land, Infrastructure and Transport to take legal steps against the nation’s biggest carrier. It recently imposed a fine of 2.79 billion won ($2.6 million) on Korean Air and 1.5 million won on Cho Hyun-ah.
Korean Air was thrown back into crisis in March, when Cho Hyun-ah’s younger sister Cho Hyun-min was embroiled in another scandal due to her misconduct. She allegedly yelled and threw a cup of water at an advertising agency manager because the manager could not answer her question.
Since then, fresh allegations of misconduct and even suspicions of smuggling have emerged, involving Cho’s mother Lee Myung-hee. Two rounds of search and seizure operations have already taken place at her home and the Korean Air headquarters. Police have also summoned Lee and the elder Cho multiple times for questioning over customs evasion.
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| Lee Myung-hee (left) returns after police investigation on June 4, while her daughter Cho Hyun-ah appeared for a questioning on May 24. (Yonhap) |
While they have so far escaped arrest sought by the police, industry experts said Korean Air faces an unprecedented crisis in its corporate value.
“Repeated exposure to owner risk will inevitably lead to a discount of brand value. Although Korean Air is the most representative full-service carrier in Korea, along with the high performance of its low-cost carrier brand Jin Air, passengers these days are becoming less loyal to brands as they are sensitive to prices.This means that tarnished brand image could impact passenger demand,” said Seo Yong-gu, a professor of business management from Sookmyung University.
According to Brandstock, a company that evaluates brand value, Korean Air Lines lost around 8 percent of its brand value within six days after the younger Cho’s scandal first surfaced online. It was the lowest figure since last year.
Korean Air serves 123 cities across 43 countries and is recognized for its high-quality in-flight service.
In terms of Brand Stock Top Index, which is calculated based on stock value (70 percent) and consumer feedback (30 percent), Korean Air topped the airline category until December 2014. After the “nut rage” incident occurred, Korean Air slipped one notch in January 2015 and could not get back to No. 1 for over 13 months. In May 2016, Korean Air retook the top spot from its rival Asiana Airline.
“But considering that police investigation into the so-called ‘water rage’ scandal is ongoing, it won’t take long to see Korean Air’s brand value fall. It will become harder for the company to recover this time in a short period of time,” said an official from Brandstock.
Korean Air’s stakeholders have also begun taking matters into their own hands.
The airline’s second-largest shareholder, the National Pension Service, sent out a public statement addressed to the company on Tuesday, demanding the troubled airline find a way to resolve the current mess caused by the scandal-ridden owner family.
It also urged the top management leadership to have a face-to-face talk with shareholders in order to use its shareholder rights to take action. The NPS has roughly 12.4 percent of shares in Korean Air.
While the NPS has also hinted at teaming up with other minority shareholders to call a shareholders meeting and force a change in the leadership, the Ministry of Land, Infrastructure and Transport has been reviewing administrative measures against Jin Air, the group’s budget airline, over the past two months.
It is reviewing whether to take punitive measures against the younger Cho, or Emily Cho, after a report said that Cho had been listed as a member of Jin Air’s board of directors from 2010 to 2016, although her nationality is American. Korean law prohibits those of foreign nationality from becoming a member of a board of directors.
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| Cho Hyun-min, who was a marketing director at Jin Air in 2012, servces juice to passengers as part of the company’s campaign to mark its 4th anniversary. (Yonhap) |
The ministry has reportedly been in talks with three law firms to discuss administrative measures against Jin Air, possibly canceling its operating license or levying fines.
Jin Air has been suffering from drops in stock prices upon the scandal, just months after it was listed in December.
But even though the airline faces such threats, including an ongoing boycott by a few consumers, industry insiders said its tarnished corporate image would not immediately lead to financial damage for the company.
“While there are only two big names in the local full-service airline business, Korean Air has been and will still enjoy a boom in the cargo industry amid increasing demand for overseas travel. It is less likely to see Korean Air lose passengers because there are not many options for them,” said an industry insider, who mainly covers the group’s reputation management.
“Korean Air will not change even if it removes the owner family from management positions. When issues like this happen, it is the employees who suffer the most. That is why resignation or a simple leadership change is not the answer to owner risk or crisis management. What must be done for the company as well as the employees is the company’s structural change or corporate policy revision,” he said.
Korean Air is only the latest in a series of big-name companies here that have faced crises involving their owners.
Last year, MP Group Chairman Jung Woo-hyun, who owns the Mr. Pizza franchise in Korea, stepped down after it was revealed that the owner family had overcharged for cheese supplied to franchisees.
In 2016, he was also accused of slapping a 58-year-old security guard at a Mr. Pizza store in Seoul for shutting the main gate while he was still having dinner.
Earlier this year, local fried chicken franchise Hosigi Chicken Chairman Choi Ho-sig resigned over allegations of sexually harassing a female employee in her 20s. Hosigi faced a 40 percent drop in sales after the case, as many consumers began to boycott the brand.
But Hosigi Chicken remains one of Korea’s top four preferred chicken brands, according to a poll conducted by local pollster Realmeter on some 13,000 adults in May.
“Consumer preferences are difficult to change, and some customers do not have second thoughts when they see a cheaper, more familiar brand,” said Lee Byung-hun, a professor of sociology from ChungAng University.
“In that sense, it is important for companies to focus on improving corporate value from within, such as by making compensation for insiders like employees, instead of the consumers.”
By Kim Da-sol (ddd@heraldcorp.com)
