"Seats Popular for Being Spacious and Affordable on Europe Routes... Still Absent in Korea [Weekend Money]"

Cheaper Than Business, More Spacious Than Economy
Most Global Airlines Adopt Premium Economy, Driving Revenue Up
Untapped Growth Potential for Korean Airlines Yet to Introduce It

Yonhap News

Last year, most global airlines turned away from economy seats. This was because they fully enjoyed the benefits of premium seats, which have a higher average ticket price. Domestic airlines, still wary of regulators and consumers, have not yet reaped the rewards of premium seats. On the other hand, this suggests that there is still significant potential for revenue growth.

Hana Securities has identified growth potential in domestic airline stocks based on this background. Last year, demand for premium seats became prominent among global full-service carriers. Delta Air Lines saw its premium seat revenue grow by 7% year-on-year, driving overall revenue growth. The same was true for United Airlines. While United’s total revenue increased by 4% compared to the previous year, premium seat revenue grew by 11%. In contrast, economy seat revenue increased by only 5%.

Having tasted the fruits of improved performance, airlines are now neglecting economy seats. The proportion of economy seats at Air France decreased from 81% in 2022 to 79% last year. At KLM, the share of business and premium economy seats rose to 16%. The “premium economy” seat, positioned between business and economy, is becoming a new revenue driver for airlines. These seats are more expensive than economy but are offered at a more accessible price point than business class, targeting a broader range of customers.

Most full-service carriers in Asia already offer four seat classes: first, business, premium economy, and economy. Recently, first-class seats are gradually being reduced, while business and premium economy seats are being expanded. Korean Air, the only full-service carrier in Korea, still operates only three seat classes: first, business, and economy. There has also been no further segmentation within the economy class.

Currently, Korean Air’s standalone 12-month forward price-to-earnings ratio (PER) stands at just 8 times. Even this figure does not reflect the valuation of its aerospace division in the share price. Analysts suggest that after the merger with Asiana Airlines, if Korean Air establishes measures to improve aircraft utilization, revenue could increase without a significant expansion of its fleet.

Do-Hyun An, a researcher at Hana Securities, explained, “On the Incheon-New York route, compared to other airlines that have reduced first and economy seats and increased the number of mid-tier seats using the same aircraft, Korean Air generates about 15% less revenue per flight. If Korean Air addresses this gap in the long term, there is ample room for revenue growth.”