Hit with the triple whammy of global trade conflicts, diminished profitability and management risks, South Korea’s two full-service air carriers have decided to severely cut back on cargo services to carry through their quarterly operating loss, which exceeds 100 billion each.
Korean Air and Asiana Airlines both said Monday that they were suspending domestic cargo delivery service as of October, in an effort to improve their financial situation after reporting poor second-quarter earnings amid hefty foreign exchange losses.
Industry watchers said the recent boycott of Japanese products and tourism, as well as China’s recent decision to deny foreign carriers permission to launch new routes, had hurt the airlines as they were already suffering from unfavorable foreign-exchange rates.
The airlines are hence moving to enhance profitability by suspending domestic cargo delivery service, which has seen lackluster demand, they said.
Korean Air cited “accumulated losses” as a reason for discontinuing its cargo service beginning Oct. 1 at three provincial airports -- in Cheongju, Daegu and Gwangju.
In the first half of this year, the air carrier recorded 1.2 trillion won in sales from its overall cargo business, which fell by 9.6 percent on-year. Sales in the domestic cargo delivery business plunged by 12 percent over the same period.
Asiana Airlines said restructuring its cargo business would strengthen the air carrier’s profitability, and that it intends to operate its domestic cargo service only along its Gimpo-Jeju route and suspend the service at Daegu, Gwangju and Cheongju International Airports from Oct. 1.
Asiana Airlines’ Q2 net loss has worsened compared with the previous year, reporting 202.4 billion won from 46.8 billion won in 2018. The air carrier said this was the result of increased foreign exchange losses.
“The quarterly performance was influenced by the won’s weakness against the dollar and lower demand in the cargo delivery business,” said an Asiana Airlines official.
On Monday, industry data showed that local air carriers have seen combined losses in market capitalization of at least 1.29 trillion won since the nationwide boycott of Japanese tourism began.
According to the Korea Exchange, the combined market capitalization of six Kospi-listed air carriers -- Korean Air, Asiana Airlines, Jeju Air, Jin Air, T’way and Air Busan -- amounted to 1.29 trillion won as of Aug. 16, a decline of 21 percent compared with the end of June.
The stock prices of each air carrier also plunged by from about 9 percent to 34 percent over the two months, Korea Exchange said, adding that Jin Air had seen the biggest drop -- from 21,100 won per share as of June to 13,950 won in the last week. This equates to a loss of some 214 billion won in market capitalization, according to the Korea Exchange.
Meanwhile, Korea Corporate Governance Improvement -- the second-largest shareholder in Korean Air’s parent company, Hanjin KAL -- made it official on Monday that it would bid for Asiana Airlines, which Asiana parent company Kumho Group put up for sale last month.
Kang Sung-boo, chief executive of activist fund KCGI, said in an interview with a local daily that KCGI was at an early stage of reviewing an investment proposal, while also in talks with several local and overseas firms to form a consortium to bid for Asiana.
“While the country’s aviation industry is under serious risk, we thought there should be a breakthrough. While global competitors have managed to make profit, local carriers failed to do so,” said Kang in an interview.
However, industry sources said the activist fund was targeting Asiana Airlines after US air carrier Delta Air Lines acquired 4.3 percent of the shares of Hanjin KAL in June, in an apparent move to defend its joint venture and the ownership family’s management.
KCGI, which increased its stake in Hanjin KAL to 15.98 percent in June from 14.98 percent, has been challenging the leadership takeover of Korean Air’s owner family since the sudden death in April of ex-Chairman Cho Yang-ho.
By Kim Da-sol (email@example.com)