Korean Air Soars Alone in Q1 Thanks to Strong Cargo Business Performance

[Asia Economy Reporter Yoo Hyun-seok] Korean Air is expected to record strong earnings in the first quarter due to the robust performance of its cargo business. Despite the continued high oil prices, the rise in cargo freight rates appears to have had an impact.

According to FnGuide on the 7th, securities firms forecast Korean Air's first-quarter sales and operating profit this year to be 2.8313 trillion KRW and 597 billion KRW, respectively. This represents increases of 57.96% and 487.66% compared to the same period last year. Earnings estimates continue to rise. Three months ago, the sales and operating profit forecasts were 2.4802 trillion KRW and 313 billion KRW, and one month ago, they were 2.721 trillion KRW and 504.7 billion KRW.

Some securities firms predicted even higher results. Hanwha Investment & Securities projected sales of 3.3 trillion KRW and operating profit of 787.9 billion KRW, while Daishin Securities expected 2.8639 trillion KRW in sales and 603.9 billion KRW in operating profit.

Notably, these strong results are expected despite the recent decline in cargo freight rates and the ongoing high oil prices. The TAC Index, a global air cargo transportation index, showed that the average air cargo freight rate on the Hong Kong-North America route was $10.90 per kilogram in January, but dropped to $9.68 in February and $8.18 in March.

Additionally, the Ukraine-Russia conflict has kept oil prices high. On the 5th (local time), the May West Texas Intermediate (WTI) crude oil price on the New York Mercantile Exchange closed at $101.96 per barrel, down $1.32 (1.3%) from the previous trading day, but still more than $20 higher per barrel compared to January 6.

The securities industry expects air cargo profitability to have remained strong throughout the first quarter. Although the first quarter is traditionally considered an off-season, supply was tight. Furthermore, the surge in jet fuel prices due to Russia's invasion of Ukraine led to increased fuel surcharges, which is also analyzed to have contributed to maintaining high profitability.

Park Soo-young, a researcher at Hanwha Investment & Securities, explained, "Cargo rates once again set record highs, significantly contributing to strong earnings. The supply shortage that persisted through the first quarter, combined with the sharp rise in oil prices, likely caused the average quarterly cargo freight rates to increase compared to the previous quarter."

The outlook for this year is also positive. From the second half of the year, passenger demand is expected to recover, boosting earnings. The government has decided to increase weekly international flight frequencies by 100 flights each month starting in May for regions such as the Americas, Europe, Thailand, and Singapore, where quarantine exemptions and visa-free entry are possible, and plans to increase by 300 flights monthly from July. The normalization of international flights at regional airports has also been planned.

FnGuide forecasts that Korean Air's sales and operating profit for this year will reach 11.4746 trillion KRW and 1.4888 trillion KRW, respectively, representing increases of 27.26% and 4.99% compared to the previous year. Yang Ji-hwan, a researcher at Daishin Securities, said, "Demand is rapidly increasing on tourist routes such as Hawaii, Guam, Saipan, and Hanoi, as well as long-haul routes to the Americas and Europe where quarantine requirements for arrivals have been lifted. The full recovery of passenger demand is expected to occur when China and Japan lift quarantine measures for arrivals." He added, "With limited increases in cargo supply due to demand growth on some routes, the leverage effect from rising passenger load factors makes it highly likely that 2022 will see record-high profits."

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