[Click eStock] Air Cargo Records Historic Performance... Korean Air 'Holds Strong' Despite COVID-19

2Q Air Cargo Expected to Break Record High Sales
Travel Resumption Optimism Remains Despite Resurgence

[Asia Economy Reporter Minwoo Lee] Korean Air is expected to post earnings in the second quarter of this year that significantly exceed market consensus. The resurgence of COVID-19 has prolonged the global logistics crisis, leading to record-high cargo sales, while passenger booking demand is also increasing in line with COVID-19 vaccinations.

On the 12th, Korea Investment & Securities forecasted that Korean Air would record consolidated sales of 1.961 trillion KRW and an operating profit of 170 billion KRW in the second quarter of this year. This represents a 13.4% increase in sales and a 54.3% increase in operating profit compared to the same period last year. Operating profit is expected to rise about 67% compared to the previous quarter, exceeding consensus by 60%. According to financial information provider FnGuide, the consensus operating profit for Korean Air in the second quarter was only 106.1 billion KRW.

The growth in the cargo sector was the main driver. Sales are estimated to reach 1.502 trillion KRW, a 22.5% increase compared to the same period last year. The resurgence of COVID-19 has prolonged the global logistics crisis, which has actually acted as a short-term factor boosting performance. As ocean freight rates surged and it became difficult to secure vessels, demand shifted to air cargo, causing Korean Air's cargo freight rates to rise slightly from the first quarter and transport volume to increase by an estimated 10%. Researcher Choegunwoon from Korea Investment & Securities said, "Cargo sales are expected to set a new record, offsetting the passenger sector's sluggishness and the burden of rising oil prices," adding, "This strong cargo market condition is expected to continue into the second half of the year."

The resumption of overseas travel is only a matter of timing, and its inevitability means passenger sales recovery can also be expected. Researcher Choi explained, "Even without this resurgence, international flights would not have recovered until next year," and added, "With the full-scale rollout of vaccinations, overseas travel is likely to resume next year." He also emphasized the importance of noting the increasing booking demand linked to vaccinations.

Against this backdrop, Korea Investment & Securities maintained its 'Buy' rating and target price of 36,000 KRW for Korean Air. The closing price on the previous trading day was 30,300 KRW. Researcher Choi analyzed, "In the long term, Korean Air is the biggest beneficiary of the post-COVID era thanks to the acquisition of Asiana Airlines and the restructuring of low-cost carriers (LCCs)," and added, "In the short term, even if confirmed cases increase, the cargo-related benefits limit the risks."