[Click eStock] "Korean Air, Profitability Will Greatly Improve Once COVID-19 Passes"

Enduring the 'Borittgogae' with Air Cargo Demand
COVID-19 Vaccine Transport: A Blessing Amid Adversity

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Korean Air is holding on through air cargo in the era of the novel coronavirus infection (COVID-19). It is expected that profitability will improve significantly after the impact of COVID-19 subsides.

On the 28th, Hi Investment & Securities maintained a 'Buy' rating and a target price of 25,000 KRW for Korean Air. The closing price on the previous day was 20,750 KRW. It is expected that the difficulties caused by COVID-19 will be endured through air cargo, aiming for performance improvement in the future.

Junyoung Ha, a researcher at Hi Investment & Securities, said, "As the recovery of international passenger demand is slow, the supply of cargo space through passenger aircraft belly cargo will also be insufficient, so air cargo freight rates are expected to remain strong next year." He explained, "According to the International Air Transport Association (IATA), consumers' expectations for resuming air travel are gradually being postponed, so the air passenger downturn must be sustained with cash generated from air cargo."

The demand for COVID-19 vaccine transportation is a positive factor amid adverse conditions. The demand for vaccine transportation is expected to put pressure on air cargo supply and demand, leading to an increase in air cargo freight rates. Researcher Ha said, "Vaccines need to be transported at temperatures between 2 to 8°C, and for vaccines using the mRNA platform, maintaining -70°C is essential. Qatar Airways, the world's second-largest air cargo carrier, has secured temperature-controlled containers for COVID-19 vaccine transportation." He added, "Korean Air has also received IATA certification for pharmaceutical transportation and has formed a task force (TF) for COVID-19 vaccine transportation, so it is expected to benefit when demand for COVID-19 vaccine transportation arises."

The point at which profitability is expected to improve significantly is after COVID-19. When the aviation market is reorganized, the market share of top companies usually increases, and freight rates will normalize. Researcher Ha analyzed, "In the past five years, the domestic aviation market has seen new airlines entering one after another, leading to a chicken game, which kept air freight rates low. If mergers and acquisitions (M&A) occur among airlines or some airlines cease operations due to COVID-19, the number of competitors will decrease, freight rates will normalize, and Korean Air, as the market leader, will receive the greatest benefit."