[Click eStock] Korean Air Posts 3Q Loss on Consolidated Basis... Must Turn Around with Air Cargo and Restructuring

3Q Separate Operating Profit 7.6 Billion KRW... 94% Decrease YoY
First Earnings Announcement in 4 Years... Mixed Feelings of Regret and Confidence
Consolidated Estimated Loss Around 30 Billion KRW... Impact of Hotel Business Slump

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Korean Air, which disclosed its separate financial results for the third quarter of this year, is estimated to have recorded a loss on a consolidated basis. Passenger demand recovery remains slow, and it is analyzed that the company must rely on rising air cargo rates and restructuring.

On the 6th, Korea Investment & Securities forecasted that Korean Air recorded a consolidated loss in the third quarter of this year. The day before, Korean Air announced separate financial results for the third quarter of this year, reporting sales of 1.5508 trillion KRW and operating profit of 7.6 billion KRW. These figures represent decreases of 53% and 94%, respectively, compared to the same period last year. Consolidated results were not disclosed. The separate financial results disclosure appeared for the first time in four years since October 2016. Researcher Choegoun Woo of Korea Investment & Securities estimated, "Considering losses from the hotel business, the company likely recorded a loss of around 30 billion KRW."

Passenger revenue decreased by 87% year-on-year due to the impact of COVID-19. Supply (ASK) dropped by 77%, and transport performance (RPK) shrank by 91%. Cargo volume and rates increased by 20% and 32%, respectively, causing cargo sales to surge by 59%. The reflective benefit from the sharp decline in belly cargo supply on passenger aircraft continued, but the extent decreased compared to the previous quarter. However, excluding the impact of changes in this year's commission revenue recognition standards, the rate increase compared to the same period last year slowed from 80% in Q2 to 43% in Q3. Although foreign exchange gains of 134.2 billion KRW were recorded, impairment losses in the hotel business amounting to the 300 billion KRW range were reflected, resulting in a net loss of 385.9 billion KRW.

Passenger demand recovery in the fourth quarter is expected to remain slow, so reliance on government economic stimulus is necessary. On the other hand, cargo rates are expected to rebound again compared to the third quarter, supported by peak season effects and strong IT demand. Researcher Choi said, "Although the third-quarter results fell short of expectations, Korean Air still performed best among global airlines by maintaining operating profit. Since cost reduction effects continue, the direction of cargo rates is important for short-term profitability."

He emphasized the need to pay attention to the fact that since last month, air cargo rates on major Asian routes based on the Hong Kong Air Cargo Tariff Index (TAC) have surged by about 30-40%. Both container shipping and air freight are ultimately unable to meet demand increases with supply. Researcher Choi explained, "Now that domestic and international competitors can no longer delay restructuring, Korean Air's reflective benefits will stand out. This is an opportunity to raise its market share in the Asian aviation market to the next level."

Against this background, Korea Investment & Securities maintained a 'Buy' investment rating and a target price of 25,000 KRW for Korean Air. The closing price the previous day was 20,500 KRW.

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