"Passenger Flight Reductions Contribute to Improved Cargo Business Performance"

by Ko Hyeonggwang

Published 31 May.2020 12:36(KST)

[Asia Economy Reporter Koh Hyung-kwang] Daishin Securities announced on the 31st an analysis that the reduction in international passenger flights due to the novel coronavirus infection (COVID-19) helps improve the profitability of airlines' cargo business divisions.

Yang Ji-hwan, a researcher at Daishin Securities, said on the day, "Although the operation of international passenger flights worldwide has been suspended by more than 90% since April due to COVID-19, ironically, the suspension of passenger flights is acting as an opportunity for airlines that have cargo business divisions," adding, "The suspension of passenger flights contributes significantly to improving the profitability of the cargo division due to a shortage of cargo supply and a sharp drop in jet fuel demand leading to a decrease in jet fuel prices."

Researcher Yang said, "Korean Air recorded operating profits exceeding 1 trillion won in 2010 and 2016?2017, periods when the cargo business division had a large contribution," and analyzed, "Looking at Korean Air's cargo freight rates at that time, the average was 391 won in 2010, 284 won in 2016, and 326 won in 2017, while the air cargo freight rate in the second quarter of this year is estimated to be much higher at 715 won." He added, "Considering that most of the costs in the cargo business division are fuel costs, the profitability of the cargo division must have improved significantly."

Furthermore, Researcher Yang explained, "Globally, air-transported cargo amounts to about 6 trillion dollars annually, accounting for about 35% of global trade volume, and approximately 52 million tons, which is about 1% of trade volume," adding, "Air cargo is transported by companies operating cargo-only planes such as UPS and FedEx, as well as airlines like Korean Air and Cathay Pacific that transport both passengers and cargo simultaneously. As of 2018, Korean Air ranked sixth in cargo transport volume among the top carriers."