"Korean Air Outperforms in 2Q... Passenger Outlook Positive, Cargo Faces Uncertainty" [Click e-Stock]

Increase in Labor and Equipment Costs Offset by Falling Fuel Expenses
Uncertain Outlook for Second Half... Rising Travel Demand, Declining Cargo Demand

Korean Air performed better than market expectations (consensus) in the second quarter of this year. Although various costs such as wages and the introduction of new equipment increased, these were offset by a decrease in fuel expenses. In the second half of the year, solid passenger revenue is expected to continue, but air cargo is likely to face uncertainty due to the impact of tariffs.

On July 14, Yuanta Securities maintained its target price for Korean Air at 31,000 won and its investment opinion as 'Buy', citing these factors. The closing price on the previous trading day was 24,850 won.

In the second quarter of this year, Korean Air recorded separate sales of 3.9859 trillion won and operating profit of 399 billion won. Compared to the same period last year, sales and operating profit decreased by 0.9% and 3.5%, respectively. However, operating profit exceeded the consensus by 4.3%.

International passenger revenue was 2.2753 trillion won, a decrease of 1.7% compared to the same period last year. Due to supply adjustments during the off-season, Revenue Passenger Kilometer (RPK?a metric calculated by multiplying the number of paying passengers by the distance flown) decreased by 0.2% year-on-year. However, despite a reduction in fuel surcharges, the company demonstrated strong fare defense, maintaining the yield per kilometer at 124 won, similar to the previous quarter.

Air cargo revenue was 1.0554 trillion won, down 3.8% from the same period last year. Due to U.S. tariff policies and a slowdown in e-commerce demand, Cargo Ton Kilometer (CTK?the amount of cargo transported multiplied by the distance flown) fell by 5.0% year-on-year.

Operating expenses were 3.5869 trillion won, down 0.6% from the second quarter of last year, which is considered a strong performance. First, labor costs increased. In addition to wage hikes, approximately 40 billion won in retroactive payments due to the expansion of the regular wage scope were reflected as a one-off, resulting in a 6.8% year-on-year increase in labor costs. It is expected that about 20 billion won will continue to be reflected each quarter going forward. Due to the retirement of old aircraft and the introduction of new equipment, depreciation expenses increased by 19.6% compared to the second quarter of last year. However, the price of jet fuel fell by 18% during the same period, leading to a 20% sharp drop in fuel expenses, which offset the increase in other costs.

The outlook for the second half of the year remains uncertain. First, passenger revenue is expected to be positive. Since the beginning of the year, travel sentiment has improved significantly, and demand for overseas travel has increased due to the strong won-dollar exchange rate, leading to a solid market environment. Fares on long-haul routes are also gradually rising, and based on premium demand, international fares in the second half are expected to increase by 3% compared to the same period last year.

On the other hand, the outlook for air cargo is expected to face uncertainty. Due to the U.S. reciprocal tariff measures and the abolition of the small-value duty-free exemption, both cargo volume and rates are projected to decline year-on-year.

Choi Jiwoon, a researcher at Yuanta Securities, explained, "Compared to domestic low-cost carriers (LCCs), Korean Air has strong fare defense, and in the mid- to long-term, as the only full-service carrier (FSC), it is expected to strengthen its market dominance and create merger synergies through the integration with Asiana Airlines."

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