KAL,Asiana seek rebound
By Lee Hyo-sik
The country’s two largest flagship carriers — Korean Air and Asiana Airlines — posted dismal results in the first quarter, weighed down by high oil prices, the European debt crisis and other unfavorable economic conditions. The question now is whether they can bounce back in the second quarter.
Both companies say the worst is behind them, adding they have and will benefit from recently lower crude prices and other better business conditions.
Most analysts voice the same views, saying the bottom line for air carriers will likely improve in the coming months.
They say Korean Air and Asiana Airlines have and will transport more cargo following the Korea-U.S. free trade agreement (FTA), offsetting a decline in trade between Korea and struggling Europe. The upcoming London Olympics is also expected to provide a boost to both airlines, they said.
But there are downsides — the weakening Korean won against the dollar in recent weeks has made it more expensive for carriers to purchase oil and other materials.
This has also discouraged Koreans from heading overseas, while the uncertainty surrounding Europe’s debt crisis could spell ongoing trouble for the two flagship carriers.
In the first three months of the year, Korean Air posted an operating loss of 99 billion won ($83.5 million), compared with an operating income of 163 billion won the same period in 2011.
The firm said its cargo transport business fell 9 percent from a year earlier due to stagnant global demand for Korea’s information technology and other industrial products.
“Crude oil prices surged in the first quarter from a year ago. We also suffered large depreciation after purchasing many new aircrafts,” a Korean Air spokesman said.
“But we expect both passenger and cargo sectors will rebound in the coming months. Above all, falling fuel prices in recent weeks will definitely help us.”
Asiana Airlines also saw its operating income plummet by 53 percent to 35.5 billion won in the first quarter as it had to pay more for jet fuel.
“We performed better than our larger rival as our mid-distance routes connecting Korea with China, Japan and Southeast Asia posted better results, thanks to surging inbound and outbound travelers,” an Asiana spokesman said.
In contrast, Korean Air operates more long-distance flights to and from the U.S. and Europe.
Jay Ryu, an analyst at Daewoo Investment & Security, said Asiana performed better than Korean Air as local travelers opt to travel shorter distances for vacation amid stagnant economic conditions.
“Long-distance trips to the U.S. and Europe were not as popular as previous years. Instead, more Koreans headed to Japan, China and other Asian nations, providing greater boost to Asiana as it operates more mid-distance routes.”
Ryu also said soaring inbound foreign travelers helped the second-largest carrier achieve better results, projecting the company will be more profitable in the coming quarters on falling oil prices.
Jung Yun-jin, an analyst at Kyobo Securities, also echoed Ryu’s view, saying both airlines will soon fly higher.
“Even facing unfavorable business environment, Asiana did better than Korean Air because of their different business focuses. For Korean Air, I think the U.S. market is improving but it will take longer for Europe as it struggles to overcome the worsening debt turmoil,” she said.
Jung then said it is a good time for investors to snatch up shares of Korean Air and Asiana Airlines, claiming they are undervalued.
Korean Air stocks rose 1.69 percent, or 750 won, to 45,200 won last Friday, with Asiana Airlines climbing 1.56 percent to 6,490 won.