Peak Season Begins... Will Airline Stocks Take Off?

Airline Stocks Hit Yearly Lows Despite Peak Season Entry
"Difficult to Rise Without Structural Changes" vs "Structural Growth of Passengers Entering Peak Season"

Airline stocks are struggling to rebound. This is interpreted as being influenced by concerns over peak out (passing the peak) and poor earnings.

On the 5th, during the peak summer vacation season, Incheon International Airport Terminal 1 duty-free area was bustling with travelers. Photo by Jinhyung Kang aymsdream@

According to the Korea Exchange on the 9th, the stock price of Korean Air recorded 20,650 won the previous day. It fell 2.82% compared to the previous month. Compared to the year’s highest point of 23,900 won on January 2, it dropped 13.59%. In particular, on the 5th of this month, it fell to 19,900 won, marking the lowest point of the year. In addition, most airline stocks such as Jeju Air, T'way Air, and Jin Air also fell to year-low levels.

The biggest reason for the poor stock performance is the weak second-quarter earnings. Korean Air posted separate basis second-quarter sales of 4.0237 trillion won and operating profit of 413.4 billion won. The operating profit fell short of market expectations. During the same period, Jeju Air turned to an operating loss. It recorded separate basis sales of 472.9 billion won and an operating loss of 9.5 billion won.

Concerns over peak out continue to weigh on airline stocks. Profitability peak out and valuation declines are ongoing across the airline sector. Jeong Yeonseung, a researcher at NH Investment & Securities, said, "As demand growth slows, airlines’ supply increases, causing limited but persistent downward pressure on fares," adding, "There is expanding downward pressure on fares mainly on short-haul routes, and from a cost perspective, despite falling fuel costs, labor costs and airport-related expenses are rising, creating cost pressure."

However, since the third quarter is a traditional peak season, there is analysis that earnings may improve. In particular, international passengers last month mostly recovered to pre-COVID-19 levels. According to Sangsangin Securities, the international passenger performance at airports nationwide in July was 7.71 million, achieving a 96% recovery rate compared to July 2019.

Lee Seoyeon, a researcher at Sangsangin Securities, said, "The third quarter, which includes vacation, holiday seasons, and breaks, is a traditional peak season for airlines," and evaluated, "While international supply is increasing, demand strength is also continuing." She added, "International short-haul routes, which showed strong demand even in the off-season despite seasonality, are expected to once again demonstrate structural growth in passenger demand with the arrival of the peak season."

On the other hand, there is also analysis that stock price increases are difficult without changes such as market share expansion, as the poor stock performance of airline stocks is due to structural factors. Researcher Jeong said, "Valuations of domestic airlines are also repeatedly declining," and added, "In a changing competitive landscape, without structural changes such as market share gains, there are clear limits to valuation increases based solely on earnings."

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