Airline Stocks Flutter as 'Pre-Entry COVID Testing' is Abolished

Recovery in Air Passenger Demand... Combined with Paid-in Capital Increase, a Buying Opportunity at Low Prices

[Asia Economy Reporter Myung-hwan Lee] Is the day of sunshine finally coming for airline stocks that have suffered endless slumps due to the COVID-19 pandemic? Airline stocks have rebounded simultaneously as the government abolished the requirement for overseas entrants to submit negative COVID-19 test certificates. The securities industry expects that this measure will lead to a recovery in air passenger demand. There was also advice to take advantage of the recent capital increases announced one after another as a buying opportunity amid lowered stock prices.

According to the related industry on the 1st, the Central Disaster and Safety Countermeasures Headquarters held a meeting on the 31st of last month and decided to abolish the mandatory pre-entry COVID-19 testing that had applied to all domestic and foreign nationals entering the country. Accordingly, from 0:00 on the 3rd, it will no longer be necessary to submit a negative COVID-19 polymerase chain reaction (PCR) test certificate. This measure applies regardless of vaccination history or the country of departure. Japan, a popular destination for Korean tourists, also partially eased entry restrictions for overseas tourists. The Japanese government plans to allow group tours without guides starting from the 7th and increase the daily limit on overseas entrants from the previous 20,000 to 50,000.

The airline industry has welcomed the abolition of the pre-entry COVID-19 test requirement, expecting it to help recover air travel demand. Domestic airline-related stocks also surged as buying interest poured in on expectations of benefits following the government's announcement. On the announcement day, the 31st of last month, Jeju Air closed at 15,650 won, up 6.46% from the previous trading day. Other airline-related stocks such as Jin Air (3.55%), Asiana Airlines (3.39%), T'way Air (2.99%), and Korean Air (2.87%) also rose. Comparing the first and last trading days of last month, airline stocks showed solid performance. The average stock price increase rate of six airline stocks was 6.61%, significantly outperforming the KOSPI's 0.84% rise during the same period.

Attention is focused on whether this government measure will have a positive impact on airline stock prices. Airlines have struggled with operations as passenger numbers have not increased significantly even after the transition to endemic (periodic infectious disease outbreaks). Accordingly, some airlines have announced capital increases one after another to secure funds. Jeju Air announced a capital increase worth 320 billion won on the 26th of last month to introduce next-generation aircraft, and Air Busan is preparing for a 149 billion won capital increase this month. Since capital increases dilute share value and act as negative factors for stock prices, the stocks of these companies fell simultaneously after the announcements. Jeju Air's stock fell 10.27% in one day on the 29th of last month, the first trading day after the capital increase announcement, amid the 'Black Monday'.

The securities industry diagnosed that this measure will be a signal for the recovery of air passenger demand. Yeon-seung Jung, a researcher at NH Investment & Securities, said, "The abolition of the COVID-19 test regulation for entrants will alleviate concerns that domestic entry could be restricted due to COVID-19 exposure after traveling abroad, stimulating air passenger demand." Regarding Japan's easing of travel restrictions, Jung said, "International passenger demand recovery is slower than expected due to consumption sentiment decline amid economic slowdown concerns," but added, "Normalization of Japan routes could act as a stock momentum and present opportunities for low-cost carriers (LCCs) with high exposure to Japan routes."

There was also advice to take the capital increases of airline stocks as an opportunity to increase portfolio weight. Ji-hwan Yang, a researcher at Daishin Securities, said about Jeju Air's capital increase announcement, "Short-term stock price adjustments are inevitable due to this capital increase announcement," but recommended, "Considering the performance turnaround from the second half of 2022 to 2023, it is advisable to take this as an opportunity to increase stock holdings."

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