10% Down Since Early Month... When Will Korean Air's Wings Take Flight?

Cost Burden from High Oil Prices and Exchange Rates... Net Loss Expected This Year

[Asia Economy Reporter Minwoo Lee] Korean Air's stock price has been declining continuously. Concerns over cost burdens due to oil prices and exchange rates appear to have acted as negative factors.

According to the Korea Exchange, as of 9:11 AM on the 22nd, Korean Air's stock price recorded 30,250 KRW, down 0.49% from the previous day. This marks a pause for five consecutive trading days. Compared to the closing price at the beginning of this month of 33,650 KRW, it has dropped about 10.1%. This decline far exceeds the KOSPI's 0.1% drop from the beginning of the month to the previous day. The stock price has given back all the gains reflecting expectations for 'with COVID-19' and has fallen back to the level of early last month.

Concerns that the high levels of oil prices and the KRW-USD exchange rate could burden the operating environment seem to have acted as negative factors. The average jet fuel price in the third quarter was $75 per barrel, a 74% surge compared to the same period last year. It also rose 7.5% compared to the previous quarter. The high exchange rate is also a burden. The KRW-USD exchange rate surged to 1,189 KRW at the end of the third quarter on the 30th of last month, nearly 60 KRW higher than at the end of the second quarter. The relatively high exchange rate has been maintained in the 1,170 KRW range this month. Since costs such as jet fuel and aircraft lease fees are calculated in US dollars, there are concerns that losses due to increased costs calculated in dollars could grow. Minjin Bang, a researcher at Eugene Investment & Securities, predicted, "Considering the steep rise in the KRW-USD exchange rate, non-operating foreign currency losses could approach 300 billion KRW."

Although the third quarter of this year recorded the largest quarterly performance in three years (sales of 2.3072 trillion KRW, operating profit of 267.9 billion KRW), concerns about future performance are growing. Samsung Securities maintained its investment opinion on Korean Air as 'Neutral (HOLD)'. It forecasted this year's expected performance as sales of 8.24 trillion KRW and operating profit of 739 billion KRW but anticipated a net loss of 33 billion KRW. Youngho Kim, a researcher at Samsung Securities, explained, "Despite reflecting results exceeding expectations, an annual net loss is expected due to oil prices and exchange rates."

However, there is also analysis that performance could improve as air cargo rates rise entering the peak air cargo season until the end of the year. Additionally, with the 'with COVID-19' policy and economic reopening (reopening), there is an expectation to benefit from increased passenger demand. In fact, Korean Air will resume its US Hawaii route, which was suspended in April last year, next month after 19 months.