Even with Poor Grades, Expectations for Airline Stocks 'Soar'

Freight Expected to Boom Through the End of the Year

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[Asia Economy Reporter Kum Boryeong] Although airline stocks, which were hit hard by the novel coronavirus infection (COVID-19), are still showing difficult performance, expectations for improvement are growing.

According to Korea Airports Corporation and Incheon International Airport Corporation on the 13th, the number of international and domestic passengers last month decreased by 97% and 28%, respectively, compared to the same month last year.

In particular, international flights have been shrinking by more than 90% for seven consecutive months. In the case of low-cost carriers (LCCs), domestic passenger numbers increased by 16% year-on-year in July and August thanks to the summer peak season, but last month, except for T'way Air, all turned to a decline. Since the spread of COVID-19 is still ongoing worldwide, it is still too early to talk about the timing of passenger demand recovery.

However, investor sentiment is gradually becoming less sensitive to the negative impact of COVID-19. Since the industry conditions, which could hardly get worse, have continued for more than half a year, additional risks that could be reflected in stock prices are also limited. Choi Go-woon, a researcher at Korea Investment & Securities, analyzed, "Although the recovery speed is unlikely to accelerate, the stock price is moving sensitively just with events that change the direction." On the 12th, when social distancing in Korea was lowered to level 1, Korean Air's stock price closed at 20,650 won. This is an increase of 4.56% (900 won) compared to the previous trading day. On the same day, Asiana Airlines (2.22%), T'way Air (4.8%), and Jeju Air (5.26%) also rose together.

Thanks to the resumption of economic activities, cargo volume is increasing. Based on Incheon Airport, Korean Air and Asiana Airlines' cargo transport volume increased by 16% compared to the previous year. Additionally, due to the gap in 'Belly Cargo'?cargo carried in the belly compartments of passenger planes?cargo is expected to continue to boom until the end of the year.

The possibility of early approval of a COVID-19 vaccine is also a factor raising expectations for airline stocks. Kim Yoo-hyuk, a researcher at Hanwha Investment & Securities, explained, "If the emergency approval of the COVID-19 vaccine, expected between the end of this year and the first half of next year, is granted, not only will passenger demand recover, but new cargo demand accounting for 3-6% will be created during the vaccine supply process, which is expected to have a positive impact on the cargo industry."

The growing expectations have been reflected in stock prices. From the 24th of last month to the day before yesterday, Korean Air's stock price rose by 14.72%. During the same period, Asiana Airlines rose by 17.77%, T'way Air by 6.72%, and Jeju Air by 10.67%, respectively.