Korean Air Earnings Drop 70%
On Oil Prices, Exchange Rates
By SEON-JIN CHA
DOW JONES NEWSWIRES
May 5, 2005
SEOUL, South Korea -- Korean Air, South Korea's flag carrier, said its first-quarter net profit fell 70% because of higher oil prices and lower foreign-exchange gains.
Korean Air's net income for the period totaled 52.6 billion won ($52.5 million), down sharply from 173.4 billion won a year earlier. Revenue grew 2.5% to 1.70 trillion won from 1.66 trillion won, helped by rises in overseas passengers and cargo demand.
Operating profit, however, dropped 16% from a year earlier to 61 billion won as oil costs jumped roughly 20%.
The company used 324.6 billion won of jet fuel in the first quarter of 2004, but it didn't reveal the figure for this year.
Analysts expect another tough quarter for Korean Air because there is no sign that jet fuel prices will drop soon.
"The first-quarter results are lower than market expectations even considering higher oil prices. The major concern is the second quarter, when jet-fuel prices are expected to jump nearly 60% from a year ago," said Lee Hoon, an analyst at Samsung Securities.
The company also booked a charge of 24.3 billion won to correct an accounting error announced last month.
Korean Air said foreign-exchange translation gains shrank about 50% from a year earlier. The carrier enjoyed a hefty 214.5 billion won in such gains in the first quarter of 2004, when the won strengthened roughly 4% against the dollar. In the 2005 first quarter, the foreign-exchange gains narrowed to 107.4 billion won as the currency's appreciation slowed, gaining about 2% from the previous quarter.
Because Korean Air holds $5 billion of dollar-denominated debt, the company's bottom line inflates by about 50 billion won for every 10 won that South Korea's currency gains against the dollar.
Revenue from Korean Air's cargo business rose slightly to 530.6 billion won from 524.9 billion won a year earlier. Revenue from international passengers increased 7.8% to 832.5 billion won but sales from its domestic passenger business dropped 20% to 133.7 billion won as passengers preferred high-speed trains, Korean Air said.
"Jet-fuel prices will be the key to decide Korean Air's second-quarter performance but now I think that the company will have difficulty to meet its operating profit target of 600 billion won for this year," said Song Jae Hak, an analyst at Woori Investment Securities.
Korean Air has said it expects to earn more than 600 billion won in operating profit on revenue of 7.8 trillion won in 2005. But analysts are still upbeat on the outlook for Korean Air's share price.
"Despite the increasing burden of higher oil prices, demand in airline industry still remains solid and I believe that will limit the downside of the Korean Air's share price," said the Woori Investment analyst.
In trading on the Korea Stock Exchange yesterday, shares in Korean Air rose 2.5% to 18,750 won each. The airline released its first-quarter results after the market closed.
Write to Seon-Jin Cha at [email protected]
On Oil Prices, Exchange Rates
By SEON-JIN CHA
DOW JONES NEWSWIRES
May 5, 2005
SEOUL, South Korea -- Korean Air, South Korea's flag carrier, said its first-quarter net profit fell 70% because of higher oil prices and lower foreign-exchange gains.
Korean Air's net income for the period totaled 52.6 billion won ($52.5 million), down sharply from 173.4 billion won a year earlier. Revenue grew 2.5% to 1.70 trillion won from 1.66 trillion won, helped by rises in overseas passengers and cargo demand.
Operating profit, however, dropped 16% from a year earlier to 61 billion won as oil costs jumped roughly 20%.
The company used 324.6 billion won of jet fuel in the first quarter of 2004, but it didn't reveal the figure for this year.
Analysts expect another tough quarter for Korean Air because there is no sign that jet fuel prices will drop soon.
"The first-quarter results are lower than market expectations even considering higher oil prices. The major concern is the second quarter, when jet-fuel prices are expected to jump nearly 60% from a year ago," said Lee Hoon, an analyst at Samsung Securities.
The company also booked a charge of 24.3 billion won to correct an accounting error announced last month.
Korean Air said foreign-exchange translation gains shrank about 50% from a year earlier. The carrier enjoyed a hefty 214.5 billion won in such gains in the first quarter of 2004, when the won strengthened roughly 4% against the dollar. In the 2005 first quarter, the foreign-exchange gains narrowed to 107.4 billion won as the currency's appreciation slowed, gaining about 2% from the previous quarter.
Because Korean Air holds $5 billion of dollar-denominated debt, the company's bottom line inflates by about 50 billion won for every 10 won that South Korea's currency gains against the dollar.
Revenue from Korean Air's cargo business rose slightly to 530.6 billion won from 524.9 billion won a year earlier. Revenue from international passengers increased 7.8% to 832.5 billion won but sales from its domestic passenger business dropped 20% to 133.7 billion won as passengers preferred high-speed trains, Korean Air said.
"Jet-fuel prices will be the key to decide Korean Air's second-quarter performance but now I think that the company will have difficulty to meet its operating profit target of 600 billion won for this year," said Song Jae Hak, an analyst at Woori Investment Securities.
Korean Air has said it expects to earn more than 600 billion won in operating profit on revenue of 7.8 trillion won in 2005. But analysts are still upbeat on the outlook for Korean Air's share price.
"Despite the increasing burden of higher oil prices, demand in airline industry still remains solid and I believe that will limit the downside of the Korean Air's share price," said the Woori Investment analyst.
In trading on the Korea Stock Exchange yesterday, shares in Korean Air rose 2.5% to 18,750 won each. The airline released its first-quarter results after the market closed.
Write to Seon-Jin Cha at [email protected]
