Company Watch - Korean Air Lines

AirGuide Business, May 5, 2008

May 5, 2008

Korean Air announced a swing to a larger-than-expected quarterly net loss on Wednesday, pressured by higher fuel costs and a softer won currency. Korean Air faces unfriendly skies this year due to ever-rising fuel prices and a slowing global economy, although the company can partially soften the impact with surcharges. The company is also struggling against intensified competition from budget carriers, especially Chinese airlines, analysts say. Since January, South Korea has allowed Korean Air to more than double its fuel surcharges for international flights. Apr 30, 2008

Korean Air, the world's largest air cargo carrier, reported a KRW325.5 billion won (USD$324.3 million) net loss, in the first quarter ended on March 31. That compared with a KRW130.8 billion profit a year ago and a revised KRW35.3 billion loss in the fourth quarter of 2007. January-March operating profit stood at KRW19.6 billion. That was far below a KRW151.4 billion profit a year earlier and a KRW128.6 billion profit in the last quarter of 2007. Korean Air used 1.3 percent more fuel in the first quarter from a year earlier, while fuel costs, the company's single-biggest cost item making up 30 percent of its operating expenses, jumped 49 percent. Apr 30, 2008

To cope with record high oil prices Korean Air is also seeking to raise fuel surcharges and air fares, which a company official said both need government approvals. But Korean Air could be fighting a losing battle to swing back into the black, analysts say, as a weaker won may boost fuel costs even further. The won's value against the dollar at the end of the first quarter was 5 percent lower than a year earlier and 5.5 percent lower than the end of the fourth quarter. A softer won also bolsters the costs of servicing foreign currency-dominated debts; Korean Air had USD$4.9 billion in dollar debt and JPY430 million yen (USD$4.13 million) in yen debt as of the end of the first quarter. The debt mainly relates to aircraft purchasing and leasing. The weaker currency may also impact demand for overseas trips as South Korean travelers tighten their belts. Apr 30, 2008

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