Korean Air braces for turbulence as cargo rates sink
While other carriers enjoy a long-awaited rebound, Korean Air Lines is expected to see profits descend from their pandemic-era highs as the industry's recent expansion of passenger flights works against the company's cargo-focused strategy. The South Korean flag carrier had enjoyed two straight years of record profits in 2021 and 2022 even as peers like THAI and Virgin Australia went through bankruptcy. Its operating profit nearly doubled to 2.88t won ($2.22b) last year, while sales jumped by 53% to 13.41t won. This owed in large part to the unusually large role of Korean Air's cargo business, which accounted for the majority of its sales in 2022. Around 50% to 60% of airfreight is carried in cargo holds on passenger flights. This capacity was reduced drastically during the pandemic as airlines slashed service, sending cargo rates soaring. Hanwha Investment & Securities estimates that Korean Air's cargo rates more than doubled between 2019 and 2022. The carrier was able to absorb higher costs by raising prices. But this focus on freight is starting to work against the company. As airlines ramp up passenger service, more space is becoming available for cargo, driving shipping prices back down. Korean Air's rates peaked in the April-June quarter and have been falling since. Meanwhile, the carrier's passenger traffic has been relatively slow to recover because of its heavy tilt toward international flights, which generated more than 90% of its revenue in the segment before COVID-19. Government data shows that passenger volume on domestic routes in South Korea had already recovered to 2019 levels in 2022 but that cross-border traffic was still down more than 80%. Numerous setbacks led Korean Air's revenue to decline on the quarter in the October-December period. Operating profit also fell 38% from the previous quarter amid weak cargo demand. Analysts see Korean Air's operating profit halving in 2023 even as other airlines start recovering from the coronavirus.<br/>
https://portal.staralliance.com/cms/news/hot-topics/2023-02-20/sky/korean-air-braces-for-turbulence-as-cargo-rates-sink
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Korean Air braces for turbulence as cargo rates sink
While other carriers enjoy a long-awaited rebound, Korean Air Lines is expected to see profits descend from their pandemic-era highs as the industry's recent expansion of passenger flights works against the company's cargo-focused strategy. The South Korean flag carrier had enjoyed two straight years of record profits in 2021 and 2022 even as peers like THAI and Virgin Australia went through bankruptcy. Its operating profit nearly doubled to 2.88t won ($2.22b) last year, while sales jumped by 53% to 13.41t won. This owed in large part to the unusually large role of Korean Air's cargo business, which accounted for the majority of its sales in 2022. Around 50% to 60% of airfreight is carried in cargo holds on passenger flights. This capacity was reduced drastically during the pandemic as airlines slashed service, sending cargo rates soaring. Hanwha Investment & Securities estimates that Korean Air's cargo rates more than doubled between 2019 and 2022. The carrier was able to absorb higher costs by raising prices. But this focus on freight is starting to work against the company. As airlines ramp up passenger service, more space is becoming available for cargo, driving shipping prices back down. Korean Air's rates peaked in the April-June quarter and have been falling since. Meanwhile, the carrier's passenger traffic has been relatively slow to recover because of its heavy tilt toward international flights, which generated more than 90% of its revenue in the segment before COVID-19. Government data shows that passenger volume on domestic routes in South Korea had already recovered to 2019 levels in 2022 but that cross-border traffic was still down more than 80%. Numerous setbacks led Korean Air's revenue to decline on the quarter in the October-December period. Operating profit also fell 38% from the previous quarter amid weak cargo demand. Analysts see Korean Air's operating profit halving in 2023 even as other airlines start recovering from the coronavirus.<br/>
