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Airlines

Korean Air, Asiana log earnings surprises on cargo flights as global rivals record losses

By Aug 07, 2020 (Gmt+09:00)

3 Min read

Korean Air Lines Co. and Asiana Airlines Inc. have bucked the global trend of the devastating aviation industry and made rare quarterly profits, as they focused on cargo flights, defying the coronavirus travel slump.

Asiana Airlines Inc. on Friday joined its bigger local rival Korean Air Lines Co. to report an earnings surprise. In a regulatory filing, the country’s No. 2 carrier said it delivered an operating profit of 115.1 billion won ($96.9 million) in the second quarter, ending six straight quarters of losses. Sales fell 45% on year to 818.6 billion won.

“Increased cargo deliveries on long-haul routes to the U.S. and Europe helped offset a sharp decline in passenger travel demand,” said a company official.

On Thursday, Korean Air also surprised the market by posting a second-quarter operating profit of 148.5 billion won even though its sales shrank 44% from a year earlier.

The two Korean airlines marked the only major carriers among global airlines that have so far reported second-quarter results. They attributed their rare profits to increased cargo sales. Cargo revenues for both Korean Air and Asiana climbed 95% on year to 1.23 trillion won and 639.1 billion won, respectively.



KOREAN CARRIERS OUTBEAT FOREIGN AIRLINES

The profits come as other airlines are reporting record losses; slashing routes, jobs and salaries; or collapsing altogether because of the impact Covid-19 has had on passenger travel.

Delta Air Lines In. posted 6.75 trillion won in operating loss in the second quarter, while American Airlines Inc. ran an operating loss of 2.49 trillion won.

Analysts said the Korean carriers' cargo business has come to the rescue at the right time when things are going bad.

Korean Air’s passenger traffic declined 92.2% on year in the second quarter, while its cargo traffic rose 17%, in stark contrast with its global rivals, whose cargo flights shed as much as 45%.

According to the airline industry, the global air cargo demand declined 15% on year in the first half, while supply fell 23%, boosting freight rates.

Korean Air and Asiana are benefiting from enormous demand for smartphones, TVs and components from Samsung Electronics Co. and memory chips from SK Hynix Inc.

While foreign airlines reduced or cancelled their passenger and cargo flights altogether, affected by the coronavirus-induced lockdown, Korean Air and Asiana have strengthened cargo networks to transport goods globally. Falling fuel prices also helped drive down expenses.

Q3 OULOOK DIM

Analysts say, however, the earnings outlook for Korean airlines in the coming quarters is clouded by the continued concerns over the spread of the coronavirus.

To stay afloat amid virus woes, Korean Air said it is in consultations with the Ministry of Land, Infrastructure and Transport to remove seats on some of its 26 B777-300ER passenger jets and fill the space with cargo.

It also said it will focus on achieving as many cargo deals as possible to deliver quarantine goods, e-commerce products and semiconductor equipment in the second half of this year.

Air freight rates are also falling, casting a cloud over Korean airlines’ results in coming months.

Freight rates for the Hong Kong-North American routes have fallen to $4 per kilogram from as high as $8.

The market consensus for Korean Air’s third-quarter operating profit is 32.7 billion won, down 66% from a year earlier.

Unlike the full-service carriers, the country's seven low-cost carriers are expected to see their operating losses widen due to a plunge in international air travel.

Write to Kang Kyung-min at kkm1020@hankyung.com

In-Soo Nam edited this article

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