Expected to Turn to a Deficit in Q2
Fares Drop Alongside Oil Prices Amid Intensifying Competition
On July 31, NH Investment & Securities lowered its target price for Jin Air by 21.4% to 11,000 won for these reasons. The previous day's closing price was 8,970 won. However, the investment opinion was maintained as 'Buy'.
The expected results for the second quarter of this year are revenue of 302 billion won and an operating loss of 11.9 billion won. Compared to the same period last year, revenue is projected to decrease by 2.2%, and operating profit is expected to turn into a loss. Although fuel costs are expected to decrease by 17% year-on-year due to falling international oil prices, the operating loss is considered inevitable because international route fares are also declining. The background for the fare decline is intensifying competition among LCCs, particularly on short-haul routes.
However, from next year, supply is expected to be adjusted, leading to some stabilization. Among domestic competing LCCs, aggressive fare discount policies and rapid supply expansion are leading to increased operating losses and a rapid deterioration in financial structure. NH Investment & Securities believes these policies are not sustainable.
Jung Yeonseung, a researcher at NH Investment & Securities, explained, "From next year, LCCs are expected to revise their supply expansion strategies. Among LCCs, Jin Air, which has a relatively stable financial structure and can expand its scale by integrating with Asiana Airlines' LCC affiliates, has a high level of sustainability."
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