Korean Air Expected to Grow This Year but Concerned About Crude Oil Prices

[Asia Economy Reporter Yoo Hyun-seok] Korean Air, which saw a significant improvement in performance last year due to strong cargo transportation, is not entirely smiling. There are concerns that soaring crude oil prices could increase the burden of aviation fuel costs.

According to the aviation industry on the 29th, Korean Air recorded consolidated sales of 9.0168 trillion KRW and operating profit of 1.418 trillion KRW last year. Compared to the previous year, sales increased by 18.5% and operating profit surged by 1201.9%. The fourth quarter was a surprise performance. It achieved sales of 2.9075 trillion KRW and operating profit of 703.8 billion KRW, which are 4.35% and 25.09% higher than the market forecast of 2.787 trillion KRW in sales and 561.7 billion KRW in operating profit, respectively.

Cargo was the hero. The cargo business alone achieved 2.1806 trillion KRW, accounting for 75% of total sales. The increase in cargo transportation was influenced by the recovery of global cargo exports centered on routes to the Americas and the worsening bottlenecks at major ports and airports.

Following last year, sales improvement is expected to continue this year as well. This is because the cargo boom is likely to persist. The TAC index, an air cargo freight index, recorded an all-time high freight rate of 12.72 USD per kilogram on the Hong Kong-North America route in December last year. Passenger traffic is similar. Although the Omicron variant of COVID-19 is spreading, some improvement is expected in the second half of the year.

Bang Min-jin, a researcher at Eugene Investment & Securities, said, "Although we have entered the seasonal off-season in the first quarter, cargo freight rates are still firm. Considering that air cargo supply capacity is unlikely to fully recover until passenger demand meaningfully recovers and the low retail inventory in the U.S., cargo volume is expected to remain steady at least through the first half of the year."

However, there are burdens in terms of operating profit. Crude oil prices. On the 28th (local time), the price of March West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange (NYMEX) rose by 0.21 USD (0.2%) to 86.82 USD per barrel compared to the previous trading day. It has risen 15% this year alone. Since fuel costs account for 20-30% of fixed expenses for domestic airlines, this could be a burden.

According to FnGuide, securities firms forecast Korean Air's sales this year at 10.5793 trillion KRW, a 17.33% increase from the previous year. On the other hand, operating profit is expected to decrease by 21.46% to 1.1136 trillion KRW. An industry insider said, "The rise in crude oil prices is a burden for the aviation industry."