The Bottom of Airline Stocks Created by Omicron

[Asia Economy Reporter Hwang Junho] It is forecasted that the spread of the COVID-19 variant virus Omicron will form a bottom for airline stocks. In particular, there is a view that it is necessary to keep an eye on the stock price of Korean Air.

Korea Investment & Securities maintained a buy recommendation on the 5th, stating that there is no concern for airline stocks at the current stage of Omicron's spread.

As Omicron spreads, governments around the world have started to lock down again. In Korea, both domestic and foreign nationals, regardless of vaccination status, are required to quarantine for 10 days upon entry until the 16th. Airlines that planned to resume international flights from next year have no choice but to postpone their schedules again.

However, Korea Investment & Securities' analysis suggests that this should be seen not as a new crisis but as a temporary setback. Both the quarantine system and consumer sentiment have developed resistance due to repeated resurgences, and rather, the emergence of Omicron has made it easier to judge the bottom of airline stocks. In fact, airline stocks, which had risen on expectations of with-COVID reopening, have given back their gains and fallen back to the previous low point.

In particular, Korea Investment & Securities expressed optimism about Korean Air's stock price. International passenger numbers in October and November are only 6% of those in 2019, and due to the worsening logistics crisis caused by Omicron, air cargo freight rates are expected to rise further.

Air freight rates have increased by an average of 14%. Accordingly, Korean Air's fourth-quarter cargo freight rates are expected to rise by 21% compared to the previous quarter. Passenger revenue is estimated to decrease by only 24 billion KRW compared to previous forecasts, while cargo revenue is expected to increase by 70 billion KRW. As a result, operating profit is projected to increase by 31% from the previous quarter to 550 billion KRW, setting a record for the highest quarterly performance.

Choi Go-woon, a researcher at Korea Investment & Securities, said, "We maintain a 'buy' recommendation and a target price of 36,000 KRW for Korean Air," adding, "When pent-up overseas travel demand explodes in the early reopening phase, Korean Air is expected to most effectively capture the market. Although the current cargo windfall profit will decrease next year, the valuation premium is justified because the company's dominance in the more important airline market will be strengthened."

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