High exchange rate pressure caused by martial law creates headwinds for Korean airlines

Korean airlines are suffering a significant blow in the stock market in the aftermath of President Yoon Suk Yeol’s short-lived imposition of emergency martial law, which has been leading to a high exchange rate, coupled with the perception of Korea as a travel-risk country by major nations. The high exchange rate is a direct hit for airlines, as most fixed costs such as aircraft leasing fees and fuel expenses are paid in dollars. In addition, the elevated rate typically suppresses outbound travel demand. Historically, during periods of elevated exchange rates, the number of outbound travelers has tended to decrease or has shown slower growth rates. “Even with the passage of the National Assembly’s resolution to lift martial law and its eventual repeal, heightened political instability in the country makes the depreciation of won inevitable,” KB Kookmin Bank analyst Lee Min-hyuck said. “With the aftermath of emergency martial law amplifying risk aversion, exchange rate volatility is likely to remain high.” Hana Securities analyst Ahn Do-hyun noted that, although martial law was lifted, concerns persist as countries like the United Kingdom and Israel have issued travel warnings for Korea, and nations such as the United States and Japan have also urged their citizens to exercise caution. “The high exchange rate in the 1,400-won range is likely to persist for the time being. The elevated exchange rate negatively affects airlines from both demand and cost perspectives,” Ahn said.<br/>