Korean Air (003490) shares have jumped nearly 20% in three weeks, a move analysts attribute to a stronger won that has reduced dollar-denominated costs and foreign-currency debt burdens, along with expectations for operational efficiency gains from the airline's merger with Asiana Airlines late this year.
Korean Air closed at 29,800 won on the 9th, down 1.0% from the previous session, according to the Korea Exchange. The stock rose in 11 of the past 15 trading sessions and climbed to 30,350 won on the 7th of this month, surpassing its previous high of 30,000 won set on June 15 and marking its highest closing price of the year.
The won's strength is cited as the main driver of the rebound. The won-dollar exchange rate closed at 1,336.1 won as of 3:30 p.m. that day, moving toward the low 1,300s. Korean Air carries heavy dollar-denominated costs including jet fuel, aircraft lease payments and interest, so a falling exchange rate reduces those costs when converted into won and can ease the company's financial burden. As of the end of June, Korean Air's net foreign-currency debt stood at about $5.6 billion, meaning a 10-won decline in the exchange rate improves foreign-currency valuation gains by roughly 56 billion won. With consolidated foreign-currency translation losses reaching 1.13 trillion won in the first half, continued won strength could relieve some of that pressure.
Brokerages expect earnings to recover in the second half. Mirae Asset Securities estimated consolidated operating profit at 488.7 billion won for the third quarter and 263 billion won for the fourth, projecting profits in both quarters after a 207.1 billion won operating loss in the second quarter. Summer peak-season demand is expected to lift third-quarter international passenger traffic by 8.3% from a year earlier, with fares up 9.1%.
Growing cargo demand that began in the first half also supports the earnings recovery. According to Korean Air's semiannual report, the average selling price for international cargo in the first half was 5,015 won per kilogram, up 20.2% from 4,172 won a year earlier. Cargo route revenue rose 24.8% to 2.63 trillion won from 2.11 trillion won. "Long-term contracts account for a growing share of air cargo from Korea to the Americas, reinforcing earnings stability," said Ahn Do-hyun, an analyst at Hana Securities. "Air cargo will serve as the profit driver this year and next."
The year-end merger with Asiana Airlines is another factor behind expectations for improved medium- to long-term profitability. Adjusting flight schedules on overlapping routes and redeploying aircraft to match demand could expand passenger capacity. The combined airline could also cut costs by integrating maintenance, IT systems and overseas sales networks, and by jointly purchasing fuel and supplies. The merger is set for December 16. "We believe the drop in the exchange rate will offset the fuel cost burden to some extent," said Ryu Je-hyun, an analyst at Mirae Asset Securities. "On top of earnings momentum from a stable exchange rate and the cargo peak season, this is the stretch where expectations for the launch of a mega carrier begin to take hold."
