Costs Up, Demand Down, and FTC Measures Add to Korean Air's Gloomy Outlook [Click e-Stock]

Fare Increases Restricted by Asiana Airlines Merger Measures
Rising Costs Due to Expansion of New Aircraft
Passenger and Cargo Demand Both Sluggish
Additional Blow as 10 Monopoly Routes Are Lost

Korean Air recorded a "performance shock" in the third quarter of this year, with operating profit plunging by 40%. Rising costs and weakening demand, coupled with the Fair Trade Commission's decision to transfer monopoly routes, are expected to make performance improvement difficult for the time being.

On the 22nd, Daishin Securities lowered its target price for Korean Air by 7.1% to 26,000 won based on these factors. The previous day's closing price was 22,550 won. The investment opinion of "Buy" was maintained.

For the third quarter of this year, Korean Air reported separate sales of 4.009 trillion won and operating profit of 376 billion won. Compared to the same period last year, sales fell by 5.5%, and operating profit plummeted by 39.2%. These figures are far below market expectations (consensus).

The poor performance was attributed to several factors: a slowdown in both passenger and cargo markets; increasing depreciation expenses due to the introduction of new aircraft; and rising labor and operating costs resulting from wage hikes and inflation.

Given the nature of the airline business, replacing aircraft is inevitable to secure competitiveness and stability. As new aircraft are introduced, depreciation expenses structurally increase. In this situation, the Fair Trade Commission's measures have also limited fare increases. In addition, the transfer of some key routes and slots (the rights to use specific departure and arrival times) to other airlines has led to a decline in sales, compounding the negative impact.

The Fair Trade Commission, as part of structural remedies for the merger between Korean Air and Asiana Airlines, ordered the two companies the previous day to transfer 10 monopoly routes to other airlines.

The affected routes include: four to the United States (Incheon-Seattle, Incheon-Honolulu, Incheon-Guam, Busan-Guam); one to the United Kingdom (Incheon-London); one to Indonesia (Incheon-Jakarta); and four domestic routes (Gimpo-Jeju, Jeju-Gimpo, Gwangju-Jeju, Jeju-Gwangju), totaling 10 routes. Among these, the Incheon-Honolulu and Incheon-London routes have already been assigned to Air Premia and Virgin Atlantic, respectively.

Yang Jiwhan, a researcher at Daishin Securities, stated, "Korean Air is inevitably facing a continued increase in depreciation expenses due to the 191 aircraft already ordered, the 103 aircraft and aircraft engines ordered during the Korea-U.S. summit. It is difficult to expect performance improvement without sales growth, and both international passenger and air cargo demand remained sluggish in the third quarter."

Korean Air Yonhap News

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