Travel stocks weaken as sixth wave of the pandemic begins

Hope for a travel rebound may be dashed by the return of Covid-19, with airline stocks falling on concern that revenues may be dented.

Incheon International Airport bustles with travelers on Monday. Although travel demand has risen compared to 2020 and 2021, the rise may not be as dramatic due to rising Covid-19 cases. [YONHAP]

Hope for a travel rebound may be dashed by the return of Covid-19, with airline stocks falling on concern that revenues may be dented.

Airlines and travel agencies expected the summer vacation season to bring travelers back as most international travel restrictions have been lifted. But the resurgence of the pandemic is hitting the companies hard.

The government announced on July 8 that Korea is in a new wave of the Covid-19 pandemic. According to the Korea Disease Control and Prevention Agency (KDCA) on Monday, 12,693 new cases were detected, a doubling within a week.

With Covid-19 cases rising, airlines stocks have been declining.

Korean Air Lines shares fell 3.98 percent to 24,150 won ($18.50) on Monday, and Asiana Airlines fell 3.28 percent to 14,750 won. Jin Air fell 4.47 percent to 13,900 won and Jeju Air 4.47 percent to 13,900 won. Air Busan shares fell 3.33 percent to 1,450 won and T'way Air 1.76 percent to 1,955 won.

The Kospi was down 0.44 percent.

"Airlines may improve profits in the short-run due to higher fares and more traffic seen recently, but there are concerns whether that demand can keep up in the mid- to long-run," said Jung Yeon-seung, an analyst at NH Investment & Securities. "The possibility of a Covid-19 resurgence is another factor that will affect travel demand."

"If demand picks up slower than expected, financially struggling carriers will have a hard time managing their debt."

Travel agency stocks are also falling, with Hana Tour decreasing 4.91 percent to 50,400 won on Monday, and Yellow Balloon Tour falling 3.4 percent to 7,950 won. Carriers were able to profit through cargo transport despite low travel demand during the pandemic, but that option may not be available to help companies out this time.

Air freight rates from Hong Kong to North American countries were $8.72 per kilogram, down 10.1 percent on month, according to the Baltic Exchange Airfreight Index. Rates have been falling since reaching $12.72 per kilogram in December last year.

"In June, cargo transport volume was lower than 2019 levels for the first time since December 2020," said Park Su-young, an analyst at Hanwha Investment & Securities. "Korean Air Lines is still seeing double-digit percentage increases in volume compared to 2019 levels, but transport volume of the overall market is falling."

BY LEE TAE-HEE [lee.taehee2@joongang.co.kr]