THE KOREA ECONOMIC DAILY, GLOBAL EDITION

Korean Air Lines Co. is expected to benefit from China’s ban on conversion of airliners into freighters since the measure is likely to further ramp up air cargo fees, helping the carrier weather falling passenger traffic due to the Omicron variant of the COVID-19.

China’s civil aviation regulator last month said it will prohibit cabin seats to be removed to increase space for cargo, effective from Jan. 1, 2022, in a blow to airlines since they have been focusing more on cargo flights to cope with a nosedive in passengers amid the ongoing pandemic.

The Civil Aviation Administration of China (CAAC) ordered domestic airlines to restore the original configuration of aircraft that had been modified to carry more cargo. The country’s top three carriers were known to have already reinstated those planes.

The authority is expected to apply the regulation to foreign carriers, industry sources said. Once the measure covers overseas airlines, they will be able to carry cargo for Chinese routes only in cargo compartments of airliners or by freighters. Carriers with only a small number of freighters will be hit harder.

Korean Air, the world’s No. 5 cargo carrier in 2020, is better positioned than global competitors since it has enough freighters to operate more cargo flights for Chinese routes, analysts said.

“The move is expected to reduce cargo flights to China, raising air cargo fees,” said Jung Yeon-seung, an analyst at NH Investment & Securities in Seoul. “A rise in air freight rates lasts longer than expected, helping Korean Air improve earnings and its financial structure.”

Korean Air’s shares already outperformed the South Korean stock market. Its share price rose 9.2% during the first 15 days of December, outpacing a 5.9% gain on the main Kospi.

RECORD AIR FREIGHT RATES

Air cargo charges continued to rise amid the worldwide supply chain disruption. The Baltic Air Freight Indices (BAI) on Dec. 14 hit a record of 5,254, up 63% from a year earlier with the Shanghai Pudong Outbound Index growing 82% on-year to an all-time high of 12,068.

The strong freight rates are expected to help Korean Air improve earnings in the fourth quarter from the previous three months. The country’s flag carrier generated 420.2 billion won ($354.8 million) in operating profit with sales of 2.3 trillion won, reporting an operating profit margin of 18.2% in the third quarter.

Korean Air’s operating profit in the October-December period was forecast to rise some 30% to a quarterly record 550 billion won, according to Korea Investment & Securities Co.

Its revenue from cargo business is likely to jump, offsetting lower sales from passenger flights hurt by the Omicron variant, analysts said.

The number of passengers at the Incheon International Airport in November totaled around 370,000, far lower than a monthly average of 5.9 million in 2019 before the outbreak of the COVID-19.

Some analysts recommended buying Korean Air’s share on dips, selecting it as a top pick among South Korea’s reopening stocks, which are expected to benefit from the economic reopening with the easing of the pandemic.

“Korean Air is the only airline in the country that will not suffer from any new variant after the Delta and the Omicron,” said Choi Go-woon, an analyst at Korea Investment & Securities.

“Korean Air is expected to dominate the market most effectively when demand for international travels surges.”

Write to Jae-Yeon Ko at yeon@hankyung.com
Jongwoo Cheon edited this article.