Airlines fear earnings drops amid growing pressure to cut fares

Korea's major airlines are projected to suffer a drastic fall in earnings in the second quarter. They are hit hard by escalating pressure to cut fares and a string of other unfavorable macroeconomic factors, including the strengthening dollar, according to data and analysts, Tuesday. Most low-cost carriers (LCCs) are forecast to experience a double-digit decline in their operating profits during the same period due to intensified competition to woo more customers for short-distance routes. This drove them to cut airfares even at the cost of their profitability. LCCs and flag carriers, such as Korean Air, also face growing operating expenses due to rising labor and fuel costs. The won-dollar exchange rate also poses a lingering financial burden to airlines, as they have to pay fuel costs in dollars. The exchange rate on Tuesday hovered at 1,385.5 won per dollar. Data also indicate that most carriers will likely report a steep fall in earnings for the April to June period due to multiple risk factors. According to data from market tracker, FnGuide, Jeju Air is estimated to have chalked up an operating profit of 15.8b won ($11.4m) during the second quarter, down 36.2% from the previous year. The company is the nation's largest LCC by market capitalization. Other LCCs also face a similar fate. Jin Air is forecast to have generated 13.9b won in operating profit during the same period, down 22.3%.<br/>