Korean airline stocks gain on upbeat outlook for Q2 earnings

[Photo provided by Korean Air Lines]

Stocks of South Korean air carriers are showing signs of a rebound, with an upbeat prospect for second-quarter earnings on the back of lower oil prices and stronger Korean won against the dollar.

According to the Korea Exchange on Sunday, shares of Korean Air Lines Co., the country’s national flag carrier, gained 9.73 percent in June, which is higher than the Kospi’s gain of 1.89 percent.

The stock also delivered a monthly return for the first time in three months. Shares of Korean Air had declined 1.51 percent in April and 3.28 percent in May.

Shares of Asiana Airlines Inc. also rose 6.74 percent in June, and those of low-cost carriers, such as Jin Air Co. 9.47 percent, Jeju Air Co. 7.81 percent.

The stock gains come as expectations grow that the air carriers’ second-quarter earnings will be better-than-expected.

The airlines are under less fuel cost burden on a decline in oil prices. They also benefit from a favorable exchange rate.

According to Daishin Securities Co., the average jet fuel price in the second quarter was $93 per barrel, which is below the initial forecast of $105.

The recent appreciation of the Korean won against the greenback also contributes to the upbeat forecast for the airlines as their lease liabilities are denominated in dollars. Fuel bills are also paid in U.S. dollars.

The Korean won rose to the 1,270 won range against the U.S. dollar in June, up from 1,340 won per dollar.

Demand for international passenger travel is also expected to lead to improved earnings.

The second quarter is typically a slow season for the airline industry but this year is expected to be different, with demand for overseas travel going up.

[Photo provided by T’way Air]

Sales from passenger travel are expected to offset the decrease in the sales from cargo.

Daishin Securities said that Korean Air’s international passenger sales for the second quarter are estimated to reach 2.12 trillion won ($1.66 billion), up 441.7 billion won from the first quarter. The figure surpasses the anticipated decline in cargo revenue of 77.4 billion won.

Incheon International Airport’s transportation figures showed that the number of aircraft operations reached 27,860 last month, the highest since January in 2020. The number of international travel passengers reached 4.4 million, the highest since January in 2020.

“The rebound in passenger demand came as the pandemic has waned,” said Yang Ji-hwan, an analyst at Daishin Securities. “Limited supply growth has also contributed to the slower decline in international passenger fares.”

Korean brokerage firms have presented upbeat profit forecasts.

Daishin Securities recommended Korean Air as its best pick airline stock, projecting the airline’s second-quarter operating profit at 551.8 billion won, which is 57.2 percent higher than the market consensus of 351 billion won.

Low-cost carriers are also expected to benefit from the peak summer season and experience a surge in passenger demand, particularly on short-haul routes where they have a competitive advantage.

“Demand for short-haul routes demonstrates greater resilience than long-haul routes,” said an unnamed analyst at Hanwha Investment & Securities Co.

According to financial data tracker FnGuide Inc., T’way Air Co. is projected to post 182.2 billion won in operating profit this year, up 137 percent from the previous forecast of 76.9 billion won three months ago.

Jin Air is also projected to post an operating profit of 150.5 billion won this year and Jeju Air 154.2 billion won, up 34 percent and 14 percent, respectively, from the forecast three months ago.