[MarketING] Airline Stocks Soar on Recovery of Travel Demand

KOSPI Recovers to 2440 Level, KOSDAQ to 840 Level
Airline Stocks Surge... Asiana Up 3.23%, Jin Air Up 6.06%

[Image source=Yonhap News]

The KOSPI recovered to the 2440 level after rising for two consecutive days. The KOSDAQ maintained its upward trend for the fourth day in a row, reaching the 840 level. While individual stock movements continued, airline stocks surged significantly on expectations of a recovery in travel demand.

KOSDAQ Hits Year-to-Date High in One Day... KOSPI Shows Strength for Two Consecutive Days

On the 29th, the KOSPI closed at 2443.92, up 8.98 points (0.37%) from the previous day. The KOSDAQ ended the day at 843.94, rising 10.43 points (1.25%). The KOSDAQ reached the 840 level, setting a new year-to-date high in just one day.

Kim Seok-hwan, a researcher at Mirae Asset Securities, explained, "The KOSPI's gains were limited due to profit-taking in semiconductor stocks that had risen the previous day," adding, "The KOSDAQ continued its strong performance driven by the rise in secondary battery stocks." Looking at the top market capitalization stocks, Samsung Electronics fell 0.32% and SK Hynix dropped 1.70% on the KOSPI market. Concerns over the semiconductor industry's slowdown resurfaced due to Micron's second consecutive quarterly loss, leading to profit-taking in semiconductor stocks. On the KOSDAQ market, EcoPro surged 14.99%, and EcoPro BM rose 4.02%, driving the index higher.

Airline stocks showed remarkable gains in the market that day. T'way Air rose 7.5%, while Jin Air and Jeju Air increased by 6.06% each. Air Busan (3.73%) and Asiana Airlines (3.23%) showed gains in the 3% range, and Korean Air also rose 1.32%. Researcher Kim said, "Airline stocks showed strength as expectations for earnings improvement expanded amid the recovery trend in international passenger demand," adding, "Especially, low-cost carriers (LCCs) with a high proportion of Japanese routes are expected to post strong earnings."

As passenger demand, which had been blocked due to COVID-19, begins to recover in earnest, the reopening effect appears to be benefiting airline stocks. Kim Su-hyun, a researcher at DS Investment & Securities, analyzed, "With the reopening of air routes that had been closed due to COVID-19, international passenger demand has noticeably recovered," adding, "In early March, the average reservation rate for some LCCs' flights from Korea to Japan exceeded 90%, indicating a recovery in tourism demand centered on Japan and China."

The resumption of China routes is also positive. Yang Ji-hwan, a researcher at Daishin Securities, explained, "Since March, airlines have been resuming and increasing flights on China routes," adding, "The reopening of China routes alleviates the supply concentration of LCCs that had been focused on Japan and Southeast Asia, and the increased demand on these routes can improve aircraft operation efficiency, which is positive."

Growing Earnings Expectations Amid Demand Recovery

The recovery in international demand is expected to lead to increased earnings for airline stocks. In particular, LCCs are forecasted to achieve record-high earnings in the first quarter of this year. With concerns about an economic downturn highlighted ahead of the first-quarter earnings season, interest in corporate earnings is growing, and the solid earnings of airline stocks are expected to have a positive impact on their stock prices.

Choi Go-woon, a researcher at Korea Investment & Securities, projected, "The number of passengers per flight in February virtually reached an all-time high, and airfares rose more than 20% compared to pre-pandemic levels," adding, "LCCs are expected to achieve record-high operating profits in the first quarter immediately after turning profitable in December last year." He continued, "The more unfavorable the external environment, the more the first-quarter earnings surprise of LCCs will stand out," adding, "The combined operating profit of the top three LCCs is expected to exceed market consensus by 46%."

Daishin Securities forecasts that Jin Air will record an operating profit of 53.6 billion KRW in the first quarter of this year, achieving the highest quarterly profit ever. Researcher Yang said, "Jin Air's first-quarter sales are expected to increase by 3320.3% year-on-year to 283.8 billion KRW, and operating profit will turn positive at 53.6 billion KRW," adding, "The estimated number of international passengers transported by Jin Air in the first quarter is about 800,000, which is a 135.3% increase compared to about 340,000 passengers in the fourth quarter of last year."