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| A Korean Air jet is refueled in this undated file photo. Courtesy of Korean Air |
By Lee Min-hyung
Korean Air, Asiana Airlines and low-cost carriers have shifted to emergency mode to attract as many passengers as possible to cope with soaring fuel costs and other operating expense increases, according to industry officials, Tuesday. The number of passengers has been on a rapid recovery track this year, but surging fuel costs are casting dark clouds over the earnings outlook of the nation's largest carrier.
According to data from market tracker, FnGuide, Korean Air is forecast to continue reporting a double-digit decline in its operating profit in the third quarter of this year, because airlines operating long-haul international flights are more vulnerable to the price volatility of aviation fuel.
Korean Air reported an operating profit of 468 billion won ($365.27 million) in the second quarter, down 36 percent from a year earlier, due to rising fixed costs triggered by a faster-than-expected recovery in passenger loads following protracted COVID-19 pandemic lockdowns. Reflecting growing demand for air travel, Korean Air's sales increased 6 percent during the same period.
But it appears too early to expect a major earnings turnaround soon, as rising fuel costs will likely keep pulling down Korean Air's revenue even in the latter half of this year, according to data from the market tracker. FnGuide forecast the carrier's third-quarter operating profit to drop 24.8 percent year-on-year.
The outlook buttressed by a steep rise in international oil prices. Data from Korea National Oil Corporation showed that the price for Brent crude reached $89 (118,000 won) per barrel as of Monday. The price of West Texas Intermediate also rose to $85.55 per barrel during the same period. Both of them have set new highs for this year.
A spokesperson for Korean Air said the carrier will focus on increasing passengers to offset increased fixed costs stemming from the jet fuel cost hike.
"We will place our focus on normalizing the number of passengers for the rest of this year," the official said.
The airline is widely expected to attract more passengers in the third quarter due to the summer vacation season and the week-long Chuseok holiday that falls on the last week of September.
Aside from the increased fuel-related fixed costs, market analysts said airlines should also brace for potentially weak earnings from non-passenger operations in the third quarter.
"Despite the seasonal recovery in the passenger transport business, Korean Air still faces concerns because it's off-season for the air cargo business, plus the impact of an economic slowdown in the third quarter," Meritz Securities analyst Bae Ki-yeon said.
Officials at other airlines also said they intend to minimize possible losses by generating more revenues from increased passenger traffic.
"We will focus on reviving profitability by attracting more passengers for our cash-cow flight routes to China," an official from Asiana Airlines said.
Low-cost carriers (LCC) are also bracing for rising fuel costs by reorganizing flight routes.
"We will reorganize our flight routes constantly in line with changing demand," an official at one LCC said.
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