[Click eStock] "Korean Air Expected to Benefit from Visa-Free Entry for Chinese Tourists in Q4"

On October 1, Yuanta Securities stated that although Korean Air experienced sluggish international passenger demand in the third quarter, demand is expected to increase in the fourth quarter due to the effect of an extended holiday period and the implementation of a visa-free entry policy for Chinese group tourists. The investment opinion remains 'Buy,' and the target price is maintained at 31,000 won.

Korean Air's standalone sales and operating profit for the third quarter of this year are estimated at 4.1479 trillion won (down 2.2% year-on-year) and 487.5 billion won (down 21.2% year-on-year), respectively. International passenger revenue is expected to slightly decline to 2.4222 trillion won (down 2.8%), and air cargo revenue is projected to decrease to 1.0801 trillion won (down 3.5%).

Choi Jiwoon, an analyst at Yuanta Securities, explained, "Although the third quarter is traditionally a peak travel season, demand for North American routes weakened due to stricter U.S. immigration regulations, and travel demand was deferred from September to October because of the holiday schedule. As a result, international passenger yield is estimated to have fallen by 6% year-on-year." He added, "Due to tariff uncertainties, both cargo volume (down 1.4%) and cargo yield (down 2.2%) declined compared to the previous year," outlining the reasons for the weak performance.

On a consolidated basis, Korean Air's third-quarter sales and operating profit are forecast at 6.3684 trillion won (up 36.2% year-on-year) and 560.4 billion won (down 15.8% year-on-year), respectively, which is expected to fall short of market expectations in terms of operating profit. Analyst Choi predicted, "A decline in profit is inevitable, as multiple factors are at play, including the Fair Trade Commission's corrective action limiting fare increases on Asiana Airlines' North American routes and declining fares among consolidated subsidiaries due to intensified competition on short-haul routes to Japan and Southeast Asia."

The extended holiday in the fourth quarter and the arrival of Chinese group tourists are expected to be positive factors. Analyst Choi assessed, "The share of full-service carriers (FSC) on China routes is significantly higher than that of low-cost carriers (LCC), so Korean Air stands to benefit more. In the mid- to long-term, momentum for expanding market dominance as a single FSC and for merger synergies remains valid."