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Airline Stocks Seemed to Recover... But Stumbled Due to COVID Resurgence

Freight Rates Unlikely to Surge as Much as in Q2... Concerns Over Decline in Domestic Passenger Traffic

Airline Stocks Seemed to Recover... But Stumbled Due to COVID Resurgence Photo by Yonhap News


[Asia Economy Reporter Geum Bo-ryeong] Airline stocks have been hampered by the resurgence of the novel coronavirus infection (COVID-19).


According to the Korea Exchange on the 19th, Korean Air closed at 18,250 won the previous day. This is a 6.41% (1,250 won) drop compared to the previous session. Other airline stocks showed similar trends. Asiana Airlines fell 5.97%, Jin Air 6.27%, Jeju Air 5.48%, and T'way Air 10%, collapsing helplessly in the face of COVID-19.


Airlines, which were hit hard by COVID-19 in the first half of the year, had been improving profitability to some extent, so they are even more concerned about the recent resurgence of COVID-19. In the case of Korean Air and Asiana Airlines, although international passenger numbers plummeted, they boosted performance in the cargo sector. Operating profits, which showed losses in the first quarter, turned to profits in the second quarter thanks to cargo. The problem is that cargo freight rates are unlikely to rise as much as they did in the second quarter. Air cargo freight rates, which surged in the second quarter, peaked in May and declined after June.


Low-cost carriers (LCCs), which are relatively small in scale, were welcoming the holiday season when domestic passenger demand increases. According to Incheon International Airport Corporation, domestic passenger numbers last month were down 10.5% compared to the previous year. Compared to -23.6% in June, this indicates a recovery trend.


Accordingly, LCCs have relatively expanded domestic routes and entered survival competition. Since the beginning of this month, domestic passengers temporarily increased compared to the previous year. However, there are forecasts that this trend will be broken due to the resurgence of COVID-19. Yang Ji-hwan, a researcher at Daishin Securities, explained, "LCCs' prospects are bleak," adding, "With the resurgence of COVID-19 domestically, the outlook is pessimistic."


On top of this, the airline market restructuring has overlapped. Depending on the outcome of the Asiana Airlines acquisition, the competitive landscape of domestic airline stocks could change significantly. Eastar Jet is facing bankruptcy after Jeju Air gave up on acquiring it. Choi Gyo-woon, a researcher at Korea Investment & Securities, analyzed, "It is becoming increasingly difficult to invest in airline stocks by looking at demand or profitability," adding, "LCCs are busy securing operating funds, and the two major national carriers still face a heavy burden from their massive debt repayment schedules."


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