[Click eStock] "Korean Air Passenger Fare Recovery Expected... Target Price Up"

Shinhan Investment Corp. raised the target price for Korean Air to 33,000 KRW on the 12th, stating that "the burden of jet fuel costs has peaked, and passenger recovery is expected." The buy rating was also maintained. The closing price on the previous day was 23,150 KRW.

Incheon Jung-gu Korean Air Aircraft Maintenance Hangar. Photo by Jinhyung Kang aymsdream@

On the same day, Myung Ji-woon, a senior researcher at Shinhan Investment Corp., said, "Consolidated sales in the fourth quarter of last year are expected to be 4.206 trillion KRW, down 1% from the previous quarter, and operating profit is expected to decrease by 22.2% to 422.7 billion KRW. This will slightly exceed market expectations." He added, "On a separate basis, sales in the air transportation sector are expected to be 3.909 trillion KRW, operating profit 430.4 billion KRW, with an operating margin of 11.0%, down 2.5 percentage points from the previous quarter. This includes the usual performance bonuses paid in the fourth quarter of last year."

Senior researcher Myung said, "Assuming a one-month lag for oil prices to be reflected in costs, oil prices peaked in September and October. The jet fuel unit price in the fourth quarter likely increased by 4.6% compared to the previous quarter," adding, "The peak passenger season passed in the third quarter. Long-haul passenger demand also declined. Combined European passengers departing from and arriving at Incheon Airport decreased by 16.3% compared to the third quarter. Korean Air’s European passenger numbers likely decreased by a similar margin."

He also noted, "Passenger yield likely fell to the level of the first half of last year. The cargo peak season arrived in the fourth quarter. Cargo sales will cover the decline in passenger sales," and pointed out, "The Hong Kong-US air freight rate index Air Cargo Tariff Index (TAC) rose 32% quarter-on-quarter in the fourth quarter. Cargo rates increased by about 12%."

Senior researcher Myung analyzed, "Korean Air’s passenger numbers at Incheon Airport last year were about 40% lower than in 2019. However, international passenger sales likely increased by about 20% compared to 2019," adding, "This is a high figure even considering rising oil prices, inflation, and exchange rates. Supply-demand imbalance played a role."

Furthermore, he added, "This year’s passenger numbers will surpass 2019 levels. While demand recovery continues, aircraft supply is still somewhat slow. Despite declines in oil prices and exchange rates, passenger yields are expected to remain at levels similar to last year."