Earnings Announcements Are Scary... Listed Companies Are Trembling

Estimated Operating Loss of About 160 Billion KRW in Q1 for Korean Air and Asiana Airlines

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[Asia Economy Reporter Geum Bo-ryeong] Companies in the aviation, duty-free, and travel industries, which are set to announce their first-quarter earnings this year, are expected to receive their worst performance reports due to the impact of the novel coronavirus infection (COVID-19).

According to financial information provider FnGuide on the 6th, Korean Air's operating loss for the first quarter is estimated at 167.8 billion KRW. Asiana Airlines' first-quarter operating loss is also analyzed to reach 163.4 billion KRW. Airlines including Korean Air, Asiana Airlines, and Jin Air are scheduled to announce their first-quarter earnings next week.

Airlines have been concerned about deteriorating performance as most international routes have been blocked due to COVID-19. Korean Air managed to record an operating profit of 257.5 billion KRW last year despite a decrease in demand for Japan-bound flights caused by worsening Korea-Japan relations, but this time it could not avoid the impact of COVID-19.

Low-cost carriers (LCCs) are in a relatively tougher situation. Due to the nature of LCCs operating many small aircraft, it is difficult to gain profits in the air cargo sector, and although demand temporarily increased, it was mainly domestic routes with lower profitability than international routes. Since the end of last year, new LCCs such as Fly Gangwon, Air Premia, and Aero K have sequentially started operations, raising concerns about oversupply.

Kim Young-ho, a researcher at Samsung Securities, said, "The deterioration of airline performance in the first half of the year due to weak demand has already become a foregone conclusion, and it is difficult to be confident about a turnaround in the second half. Even if demand recovers to pre-COVID-19 levels under limited additional growth drivers, it cannot be guaranteed to be sufficient for all 11 domestic airlines."

The duty-free, department store, cosmetics, and travel industries, which have been directly hit by COVID-19, are in the same situation. Hotel Shilla, which has already announced its first-quarter earnings, showed an operating loss of 66.8 billion KRW this quarter, turning to a deficit. Shinsegae's operating profit estimate is 43.3 billion KRW, expected to shrink by more than half compared to 109.6 billion KRW in the same period last year. Aekyung Industrial, which has a high proportion of cosmetics, is also expected to see a decrease in operating profit compared to the same period last year. It is pointed out that the high dependence on main brands focused on color cosmetics will result in a relatively greater impact on sales decline due to COVID-19.

Leading travel agencies Hana Tour and Modetour are forecasted to have operating losses of 22.2 billion KRW and 10.1 billion KRW respectively in the first quarter. Compared to last year's operating profits of 5.9 billion KRW and 3.2 billion KRW for Hana Tour and Modetour, this means they are pushed to the brink of survival. Yuseong-man, a researcher at Hyundai Motor Securities, explained, "The poor performance due to COVID-19 will continue until the second quarter of this year, and even if the situation stabilizes in the second half, it will take considerable time for the sentiment toward overseas travel itself to recover."

This content was produced with the assistance of AI translation services.