Korean Air, Asiana Airlines beleaguered by weak shares on earnings, merger

[Photo provided by Korean Air Lines]

South Korea’s two full-service carriers, Korean Air Lines Co. and Asiana Airlines Inc., are struggling in the stock market despite a surge in demand for overseas travel in the post-pandemic era.

Korean Air gained only 1.1 percent this year and fell by 23.5 percent over the past year, while Asiana Airlines declined 4.9 percent this year and 35.8 percent over the past year. This contrasts with what was anticipated for the airlines’ stocks in terms of pent-up demand for overseas travel and the reopening of China.

Another factor weighing on their stocks is the delay in anti-trust approval of the proposed acquisition of Asiana Airlines by Korean Air in the U.S., Japan and Europe.

The weak stock performance of Korean Air and Asiana Airlines is even more striking when compared to the trend of Europe’s top airline, Lufthansa, and Korean low-cost carriers (LCCs). Lufthansa’s stock rose by 22.4 percent this year and 30.9 percent over the past year, while Korean LCC, T’way Air Co. gained by 27.7 percent this year and fell by only 5.8 percent over the past year.

On Wednesday, Korean Air reported an operating profit of 415 billion won ($313.5 million) in the first quarter with sales of 3.2 trillion won. Sales increased by 14 percent on-year, but operating profit dropped by 47 percent from 788.4 billion won.

The decline in operating profit is largely due to the poor performance of its cargo business. Korean Air’s revenue from cargo operations accounted for 58 percent of its total revenue, compared with 33 percent from passenger services last year. In the first quarter of this year, freight rates fell by 25 percent and cargo volume also dropped by 14 percent, said Choi Go-woon, an analyst at Korea Investment & Securities.

Another weakness of Korean Air is that most of the increase in demand for international passenger traffic is concentrated on short-haul routes such as Japan and Southeast Asia.

The planned merger with Asiana Airlines by the end of this year is also facing hurdles. Among the 14 major countries for merger review, approval was obtained in 11 countries, excluding the U.S., Japan and the EU, which are mandatory reporting countries, it is not easy for the airline to gain approval in the two major aviation markets, Europe and the U.S.

In the U.S., where Korean Air submitted a clarification for business combination in January 2021, the company also submitted data for a second in-depth review in August last year, but the review authorization has been delayed indefinitely since November.

With Japan, where Korean Air submitted a draft notification in August 2021, corrective action consultations began in March this year, but the preliminary consultations are expected to be finalized in the first half of this year.

The EU also announced in early March that its anti-trust regulator would extend its decision on whether to approve the merger, originally scheduled for July 6, for another 20 business days, pushing the final decision date to August 3.

The EU had originally planned to announce a clearance decision in mid-March but decided that one round of review was not enough and announced that it would conduct a second round of intense scrutiny.