Bloomberg News

Korean Air Says Europe Cargo Below Forecast, Fuel to Hit Profit

October 12, 2011

Oct. 13 (Bloomberg) -- Korean Air Lines Co., the world’s second-largest international cargo carrier, said European freight demand was missing expectations as an economic slowdown saps demand for mobile phones and consumer electronics.

“There should have been more demand from Europe this time of the year,” Senior Vice President Cho Won Tae said yesterday in an interview in Seoul. Cargo has been “weak” networkwide all year, while passenger demand has risen steadily, he said.

The carrier has tumbled 33 percent in Seoul trading since the end of June, the worst performance among major Asian carriers, as cargo volumes wane and a weaker won exacerbates rising fuel prices. The higher fuel costs will also likely damp margins next year, Cho said.

“Revenue this year is pretty much similar to that of last year, but costs have surged due to fuel,” he said. “We expect the situation in 2012 to be worse.”

The carrier has received a boost from the introduction of its Airbus SAS A380 superjumbos since June, Cho said. The airline has four of the double-decker planes in service, each fitted with 407 seats, which it flies to cities including Hong Kong, New York, Los Angeles and Paris.

“The A380 has been doing very well for us,” he said. “It has been very profitable.” He didn’t elaborate on sales.

The carrier added the planes to help compete with Singapore Airlines Ltd. and Cathay Pacific Airways Ltd. for lucrative business travelers. The company has said it intends to get 50 percent of passenger revenue from premium passengers by 2019, compared with about 20 percent in 2009.

South America Flights

The airline is also considering starting flights to South America as it adds new long-haul planes, Cho said. The destinations are still under consideration, he said. The airline is also looking to start flights to Johannesburg or Nairobi by 2014, he said.

Korean Air rose 6.6 percent to 47,200 won as of 10:18 a.m. in Seoul trading. The Bloomberg Asia-Pacific Airlines Index, which tracks 17 airline stocks, has dropped 17 percent since the end of June. Cathay Pacific, the world’s largest international cargo carrier, has dropped 26 percent in the period.

The price of jet fuel has surged 31 percent in a year in Singapore trading to $121.50 yesterday, according to data compiled by Bloomberg. The won has weakened about 8.5 percent since the end of June.

--Editors: Neil Denslow, Terje Langeland

To contact the reporter on this story: Rose Kim in Seoul at rkim76@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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