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Yikes – Korean Air Q2 loss widens

While Korean Air’s Bibimbap may be the best in the sky, their recently posted financials are not.

Korean Air announced on Friday their consolidated Q2 loss of 250.8 billion Won (USD 227.1 million) – an increase from 169.2 billion Won from the same period the year before.

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Sales were up 1.1% as a result of increased tourist travel to South Korea, with net overall arrivals into the country also up 15.3% at nearly 35 million passengers, marking nearly a 48% jump from 2015 numbers. In fact in June alone the country saw 6 million more passengers arrive into South Korea than the year before. This has helped with Korean Air revenue, up from previous levels at 159.2 billion Won.

Just why the airline continues to bleed money is another question altogether. While there has been no announcement as to the specific causes of the losses, it is thought that unfavorable lease agreements on the Airbus fleet (A330 and A380) and bad fuel hedging has had a huge impact on South Korea’s largest carrier.

It also surely doesn’t help that fellow SkyTeam partner Delta has been progressively moving their Narita hub to Shanghai rather than Seoul Incheon, effectively bypassing Korea altogether. The added transit traffic and cooperation through Delta would have helped with traffic numbers and gaining market share in the lucrative trans-Pacific market from Asia to the United States. Its an odd one as well as Delta elites surely would have preferred a joint venture/metal neutral agreement with KE over SkyTeam’s bastard child member China Eastern. Alas.

While two more quarters remain for full 2016 financials to be released, the rates at which KE has hedged fuel and the rates their aircraft leases are locked on are unlikely to change. Equally unlikely is a scaling down of operations with demand into the country remaining to high and with arch rival Asiana hot on the airline’s heels.

So be prepared with some Soju come year end – unfortunately not to celebrate but to commiserate.

 

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