'Sky routes opened, but'... Clear polarization among airlines continues in Q3

Concerns Over Foreign Exchange Losses Due to High Exchange Rates Among Airlines Including Korean Air
"Deficit Expected to Decrease Due to Increase in International Flights in Q3"

[Asia Economy Reporter Hyunseok Yoo] The polarization of airline performance is expected to continue into the third quarter. Except for Korean Air, a full-service carrier (FSC), other airlines are anticipated to report net losses or operating profit deficits due to the impact of high exchange rates and other factors.

According to the aviation industry on the 13th, Korean Air tentatively recorded separate third-quarter sales of 3.6684 trillion KRW and operating profit of 839.2 billion KRW. Sales and operating profit increased by 65% and 91%, respectively, compared to the same period last year. Net profit for the same period rose 222% to 431.4 billion KRW.

Growth was seen across all passenger and cargo sectors. Passenger revenue was 1.4543 trillion KRW, up 338% year-on-year. This was influenced by the entry into the global summer peak season and the easing of global travel restrictions, which boosted international performance. Cargo revenue increased by 12% to 1.8564 trillion KRW. Although it decreased by 14.5% compared to the second quarter, it is interpreted as an increase year-on-year due to high freight rates caused by supply restrictions on European routes and the strong dollar.

However, other airlines excluding Korean Air are still expected to show poor performance. The high exchange rate is the cause. According to FnGuide, securities firms forecast Asiana Airlines’ third-quarter sales and operating profit at 1.695 trillion KRW and 96 billion KRW, respectively, representing increases of 58.9% and 1420% year-on-year. However, the possibility of large foreign exchange losses due to the sharp rise in exchange rates is increasing. Kang Sung-jin, a researcher at KB Securities, explained, "As of the second quarter, Asiana Airlines’ total capital was 204.7 billion KRW, and considering that a 10% exchange rate fluctuation could result in a foreign currency gain or loss of 450 billion KRW, the possibility of complete capital erosion in the third quarter cannot be ruled out."

For low-cost carriers (LCCs), performance improvement is expected due to an increase in international flights. The problem is the high likelihood of foreign exchange losses caused by the high exchange rate. According to NH Investment & Securities, Jeju Air’s international passengers in the third quarter reached 318,251, a 2047% increase compared to the same period last year. During the same period, Jin Air had 275,690 passengers, up 3127.84%, and T’way Air had 299,718 passengers, up 2041.76%.

Despite this increase in passenger numbers, the aviation industry believes that performance deterioration will continue through the third quarter. The exemption from the COVID-19 polymerase chain reaction (PCR) test, which had to be done within 24 hours after entering Korea from abroad, was implemented starting in October. Also, the resumption of travel to Japan, a major revenue source for LCCs, began in October. Therefore, significant performance improvement by the third quarter is unlikely. An aviation industry official said, "Although the third quarter included the vacation season, the removal of actual policy hurdles began in October," adding, "It will be better than the second quarter, but there are still ambiguous aspects."

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