Korean Air estimated to remain in black in Q3 on strong cargo sector, favorable FX impact

[Photo by Korean Air Lines Co.]

South Korean flag carrier Korean Air Lines Co. is estimated to have continued its earnings growth in the third quarter with robust cargo demand sustained and on the back of a favorable foreign exchange impact.

According to sources from aviation and financial investment industries on Monday, Korean Air is expected to report an operating profit of 40 billion won ($34.4 million) on a consolidated basis in the third quarter of this year, offsetting a fall in air travel demand.

Although profit is less than half of 96.4 billion won posted in the third quarter of last year, Korean Air managed to stay afloat given its operating loss of 82.8 billion won in the first quarter of this year when it plunged into hardship amid COVID-19 outbreak.

Korean Air is also expected to report a net profit of 60 billion won in the third quarter, swinging to surplus from the same period last year. Sales, however, is expected to fall more than 40 percent on-year to 1.9 trillion won in the July-September period.

Shares of Korean Air closed 2.39 percent higher at 19,300 won on Monday.

Solid earnings were driven by the carrier’s cargo business.

Revenue from the cargo business is expected to surge more than 70 percent in the third quarter from a year-ago period.

According to TAC Index, air freight rates from Hong Kong to North America averaged $5.5 per kilogram in September. The rates fell from $7.7 in May but remained at a high level after doubling from a year ago. Cargo volume has also been at a pre-COVID-19 level.

Bang Min-jin, a researcher at Eugene Investment & Securities, said that cargo volume will continue to remain high as demand for cargo not only for COVID-19 quarantine-related items but also industry items such as semiconductors, machinery, and agricultural goods will be strong.

Bang said the strengthening of the Korean won against the U.S. dollar after last month will also lead to more than 200 billion won in exchange gains.

Korean Air’s passenger business, meanwhile, continues to remain sluggish amid slow recovery in international air travel demand and enhanced competition in domestic routes. The carrier is expected to see a more than 80 percent plunge in passenger revenue in the third quarter.

By Song Gwang-sup and Lee Eun-joo

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