Airline and Travel Stocks Hit Hard by Iran Conflict... Earnings Forecasts Slashed

Exchange Rate Surges Past 1,500 Won, 'Cost Bomb' Hits Sector
Jeju Air’s Operating Profit Forecast Plunges 59.8%
Need to Prepare for Prolonged High Oil Prices

The Middle East geopolitical crisis has triggered a surge in both exchange rates and oil prices, putting airline, travel, and casino stocks on high alert. As the won-dollar exchange rate surpassed 1,500 won, concerns over skyrocketing costs and shrinking travel demand have combined, leading to a series of downward revisions in earnings projections across these sectors.

According to financial information provider FnGuide on April 7, among listed Korean companies (265 companies with estimates provided by at least three securities firms), Jeju Air saw the steepest drop in earnings expectations following the Iran crisis. Jeju Air's operating profit forecast for this year plunged 59.8%, from 41.4 billion won on March 27 to 16.7 billion won as of April 6. Korean Air also had its operating profit and net income forecasts for this year revised downward by 2.5% and 7.3%, respectively.

The overall weakness in airline stocks and concerns over their performance stem from the intensifying high exchange rate phenomenon. In particular, the won-dollar rate soared past the 1,500 won threshold on March 25 and has continued its upward trajectory. Airlines must pay major expenses such as fuel and aircraft leases in US dollars. The higher the exchange rate climbs, the more they are forced to bear massive cost burdens without recourse. SangSangIn Securities pointed out, “Currently, concerns are mounting over rising oil prices and exchange rates due to the Iran war, and the resulting burden of increased costs for the airline industry. Operating costs for airlines in the first quarter may increase by about 3% compared to an average year.”

Travel and casino stocks have also taken a hit. As concerns over a broader Middle East conflict have pushed up international oil prices, the resulting increase in overall travel costs, such as higher fuel surcharges, has led to fears of weaker demand, which are now reflected in earnings forecasts. HanaTour’s operating profit estimate for this year was revised down by 0.4% to 68.6 billion won. Casino stocks, which are highly sensitive to inbound foreign tourism, also saw expectations drop across the board: Lotte Tour Development (down 1.6%), Paradise Co. (down 0.9%), and Grand Korea Leisure (down 4.5%) all had their operating profit forecasts cut.

In fact, stock prices have been on a steady decline since the Iran crisis erupted. Among airline stocks, Korean Air fell 17.6%, Asiana Airlines dropped 10.5%, Jeju Air declined 17.2%, T’way Air plunged 35.2%, and Jin Air fell 13.2%. For travel and casino stocks, HanaTour was down 17.1%, Modetour dropped 13.1%, Yellow Balloon fell 16.7%, Very Good Tour was down 14.3%, Lotte Tour Development sank 30.3%, Paradise Co. was down 25.7%, and Grand Korea Leisure declined 13.8%.

With expectations that oil prices will remain high for the time being, some analysts advise shifting attention toward beneficiary stocks with defensive characteristics in this environment. Kim Minkyu, a researcher at KB Securities, said, “It may take three to six months for logistics to normalize in the Strait of Hormuz, so oil prices are likely to remain elevated, averaging $89 per barrel in the second quarter. Sectors that benefit from high oil prices and interest rates—such as energy, construction, power, trading, defense, banking, and insurance—deserve particular attention.”

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