Barely Escaping First Place Deficit... Deepening COVID-19 Quagmire

Korean Air Achieves Two Consecutive Quarters of Profit Thanks to Air Cargo, but...

[Asia Economy Reporter Yu Je-hoon] Korean Air barely avoided a loss in the third quarter despite the COVID-19 pandemic. However, since this was also a windfall gain resulting from the large-scale suspension of passenger flights, the overall industry's COVID-19 crisis is considered to be deepening.

According to the industry on the 6th, Korean Air recorded provisional sales of 1.5508 trillion KRW and an operating profit of 7.6 billion KRW based on separate financial statements for the third quarter. Sales decreased by 53% and operating profit by 94% compared to the same period last year, but it succeeded in posting a profit for two consecutive quarters despite the unprecedented decline in passenger demand due to COVID-19.

The operating profit fell short of the securities market consensus (about 40 billion KRW). This appears to be because air cargo freight rates, which played a vital role in the aviation industry, underwent a correction period. According to the government, the cargo freight rate at Los Angeles (LA) Airport, which reached 13,733 KRW per kg from April to June, dropped back to around 6,600 KRW in September.

A Korean Air official said, "The fourth quarter is the peak season for air cargo, and freight rates have recently been rising again. Additionally, due to the recent supply shortage in the shipping market, there are signs of an increase in high value-added cargo, so the outlook is expected to improve."

The fact that Korean Air, the industry leader, barely avoided a loss means, conversely, that the earnings outlook for other airlines is bleak. For example, in the case of LCCs (Low-Cost Carriers), which are in the early stages of starting cargo operations on a small scale, it is generally viewed as difficult to translate this into actual profits.

An LCC official said, "Recently, LCCs have been entering the cargo business, but it is insufficient to achieve economies of scale. The limited international routes that have reopened are recording high load factors and are playing a significant role as a source of revenue, but this is not enough to offset losses."

For this reason, national airlines are actively raising funds to overcome the difficult period. Following Korean Air and Jeju Air, Jin Air, T'way Air, and Air Busan are also conducting rights offerings, and many airlines have either received approval for financial support from the government and the Industrial Stabilization Fund (Gian Fund) or are in discussions.

Inside and outside the industry, it is difficult to specify the end of COVID-19, and since the government cannot provide indefinite support, attempts at restructuring are expected to gain momentum soon. There are already rampant rumors of a big deal involving Asiana Airlines, which is expected to enter full-scale restructuring starting next year, especially centered around financial institutions.

Professor Hwang Yong-sik of Sejong University said, "Since the COVID-19 pandemic is ongoing, it will actually take more than 2 to 3 years to reach restructuring," but added, "We should pay attention to Japan's case, which revived Japan Airlines (JAL) through harsh restructuring, and the U.S. case, where large-scale mergers and acquisitions (M&A) among major airlines occurred extensively after the financial crisis."

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