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Korean Air Does It Again and Reports Profit

Madhu Unnikrishnan
November 6th, 2020 at 2:11 PM EST

Korean Air achieved a vanishingly rare distinction this week when it reported a quarterly profit. Granted, that profit was tiny — about $5 million — and its operating margin was 0.5%, but it was a profit nonetheless.

While carriers like Japan Airlines and Lufthansa measured their quarterly losses not in the millions, but the hundreds of millions and billions of dollars, how did Korean do it? The partial answer is on the strength of cargo. Korean reported its cargo revenues were up almost 60% from the same quarter in 2019. The carrier’s strong cargo operation also led it to post a quarterly profit in August.

By contrast, Korean’s passenger revenues were down by 87%. In a presentation on its quarterly earnings, the company expressed hope that the Korean government’s plan to waive mandatory quarantines for countries with low rates of coronavirus infections will boost passenger revenues in the fourth quarter. But it also noted that quarantines and other government-imposed restrictions in Europe and the Asia-Pacific region make predicting fourth-quarter trends difficult.

Passenger demand in almost all regions fell by more than 90%, but it fell less sharply (by 79%) to the Americas, Korean reported. This tracks with cargo demand, which is up more than 80% to the Americas. Although Korean does operate a fleet of dedicated freighters, the majority of its cargo capacity is in the belly-holds of its passenger aircraft. System-wide, however, Korean says further cargo growth is constrained by a lack of capacity. It’s simply operating fewer passenger flights and has less belly-hold capacity.

Shipments of personal protective equipment in response to the pandemic also is fueling cargo demand growth. Looking ahead, Korean said it is gearing up for the safe transport of a Covid-19 vaccine and is ensuring its facilities are equipped to handle what it expects will be surging demand for what will arguably be the world’s most valuable commodity.

Separately, local media are reporting that Korean Air could be a suitor for troubled local rival Asiana, which has been riven by financial and labor woes. Earlier this year, the Hyundai conglomerate walked away from a deal. The Korea Times reports that Korean Air has been approached to take over parts of Asiana’s business, but Korean Air has not confirmed these rumors.

Madhu Unnikrishnan
November 6th, 2020 at 2:11 PM EST

Photo credit:  Korean Air

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