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Airlines to record worst earnings slump amid pandemic

Tourism, auto sectors anticipate harsher impact in Q2

(Yonhap)
(Yonhap)
South Korea’s airline industry is likely to record its worst performance in the first quarter with the dismal situation continuing in the near future.

The nation’s largest airline Korean Air, which will announce its first-quarter earnings next week, is expected to post an operating loss of around 240 billion won ($195 million), the first red in 18 quarters since 2015, according to industry watchers.

Passenger traffic is expected to shrink around 30 percent on-year.

Asiana Airlines, which posted an operating loss of 368 billion won last year, is also forecast to see around 300 billion won loss in the January-March period.

Low-cost carriers are also deeply affected. All the domestic LCCs, including Jeju Air, T’way Air and Jin Air, are predicted to post more losses.

Industry watchers predicted the worsening performance of airlines will begin in earnest in the second quarter. This is because the Korean government raised the coronavirus crisis alert to “serious” level at the end of February and the World Health Organization declared COVID-19 pandemic on March 12.

Korean Air’s operating loss may reach as much as 500 billion won in the second quarter as the international flight rate, which accounts for 94 percent of passenger sales, stands at only 10 percent, according to industry sources.

T’way and Jeju Air’s operating losses are also expected to be 50.6 billion won and 68.8 billion won, respectively.

“Normalization of international flights will be difficult until at least the second quarter. Even if the pandemic subsides in the third quarter, the peak season, it will inevitably be affected by a reduction in the number of vacation days due to the postponement of school opening,” said Yang Ji-hwan, an analyst at Daishin Securities.

To support the struggling airline industry, the Transport Ministry decided on Sunday to prepay 1.5 billion won, or 85 percent, of the ministry’s overseas travel expenses, to purchase airline tickets for overseas business trips. The central, local governments and public institutions will also take the initiative in prepurchasing airplane tickets by next month. The total is expected to reach 160 billion won.

Other pandemic-hit industries, including travel and automobiles, are also expected to see their second-quarter earnings deteriorate.

The operating loss of Hana Tour, the nation’s biggest tour agency, is estimated to be 27.7 billion won, 24.7 percent up from the first quarter. No. 2 Mode Tour’s operating loss is also forecast to expand 28.7 percent to 12.9 billion won for the April-June period. This is because the travel demand is far from recovering, while countries still maintain controls such as entry bans.

The auto industry also anticipates a gloomier second quarter.

Hyundai Motor’s operating income is estimated to plunge 50 percent to 426.6 billion won from the estimated operating income in the first quarter. Kia Motors’ operating profit is also forecast to plunge 57 percent to 190 billion won, compared with 444 billion won in the first quarter.

“In the first quarter, despite slowing demand, the companies were able to defend their performance thanks to the effects of new car releases and favorable exchange rates. However, concerns are high that the influence of the pandemic will continue throughout the second quarter,” said Kim Min-kyung, an analyst at Mirae Asset Daewoo. 

By Shin Ji-hye (shinjh@heraldcorp.com)
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