Omicron could actually be good for KAL

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Omicron could actually be good for KAL

Cargo loaded on a Korean Air Lines plane at Incheon International Airport on Thursday. [YONHAP]

Cargo loaded on a Korean Air Lines plane at Incheon International Airport on Thursday. [YONHAP]

 
The impact of the Omicron variant on full-service airlines is projected to be weak, as demand for air cargo rises.  
 
Since the Omicron variant was first reported late last month, shares of domestic airlines fell at double digit rates as countries started strengthening border restrictions and quarantine measures.  
 
But some analysts say full-service carriers, especially Korean Air Lines, will benefit from further global supply chain disruptions, which will push up air freight charges. Since Covid-19 broke out early last year, Korean Air Lines and Asiana have survived on the cargo business.  
 
Korean Air Lines runs 23 cargo planes and Asiana Airlines 18.  
 
“For Korean Air Lines, the benefits outweigh the damages caused by any resurgence,” wrote Kim Go-woon, an analyst at Korea Investment & Securities in a report Monday. “International passengers in October and November were only 6 percent of the level seen in 2019. On the other hand, rates for air cargo are expected to rise further as supply chain disruptions are intensified by the resurgence.”
 
Kim projected Korean Air Lines’ air cargo shipping rates in the fourth quarter will rise 21 percent from the previous quarter. Kim forecast the airline to report a record high of 550 billion won ($490 million) in operating profit in the fourth quarter, up 31 percent from the previous quarter.  
 
Na Min-sik, an analyst at eBest Investment Securities, said Asiana Airlines is benefitting from the air cargo business but “it has become vulnerable to external factors since it started reporting losses in 2019” in a report released on Oct. 26.  
 
Asiana Airlines reported 685 billion won in net losses through the third quarter of 2021. It is currently in the process of being acquired by Korean Air Lines.  
 
The impacts of Omicron on budget carriers could be worse as 80 percent of their revenues come from the passenger business.
 
“The longer the recovery of international passenger business gets delayed, the bigger their corporate values will be impacted,” said Na in a different report released on Monday. “Demand for international flights during the Lunar New Year period in February will bounce back” if the impacts of Omicron is mild.  
 
Shares of airlines recently started to climb.  
 
Korean Air Lines closed at 29,150 won on Monday, up 14.5 percent from a recent low of 25,450 won on Nov. 29. Jeju Air, the largest budget airline, closed at 17,000 won on Monday, up 10 percent from a recent low of 15,450 on Dec. 1.  
 
 

BY JIN MIN-JI [[email protected]]
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