Major air carriers from South Korea are experiencing a severe crisis
The appreciation of the dollar and oil prices, as well as the death of executives, hit the companies hard
/NOVOSTIVL/ Korean Air and Asiana Airlines are facing an increasingly unfavorable business outlook as they struggle to deal with the strong dollar, high oil prices and other adverse conditions, according to industry analysts Monday. This article appeared in The Korea Times.
The two carriers are having a hard time after both losing their long-time chiefs abruptly over the past month, and key external factors swaying their profitability are dealing additional heavy blows to their financial prudence.
The most imminent threat is the oil price hike. According to International Air Transport Association Jet Fuel Price Monitor, jet fuel prices ended at $84.7 per barrel on April 18, up 5.1 percent from a month earlier. This stems from the recent crude oil price hike.
On April 1, West Texas Intermediate (WTI) crude oil was traded at $61.59 per barrel, but quickly rose to $64.4 on April 8 and reached $66.3 on April 23. The price went down slightly to $62.94 on Sunday but it is still far higher than the $45.41 price offered on Jan. 1.
This could be a significant burden for carriers because generally 30 percent of their operating costs are incurred from fuel prices. Analysts said a $1 hike in crude price will cost an extra 37 billion won for Korean Air and 20 billion won for Asiana Airlines per year.
Korean Air logged a 250 billion won net loss in the first half of last year, due largely to the weaker won, but managed to scale down the losses to 80.3 billion won at the end of the year, as the local currency got stronger.
Asiana Airlines is currently up for sale as its parent group Kumho Asiana decided to sell out the core unit to salvage the entire group from financial risks. In doing so, Park Sam-koo stepped down from the group's posts including his role as Asiana Airlines CEO.