South Korea's carriers have become the latest of Asia-Pacific's airlines to be marked down by financial analysts as economic problems continue to reverberate throughout the region.
Analysts warn that flag carrier Korean Air (KAL) and its competitor, Asiana, are facing hefty end-of year losses, as the South Korean economy slides into a recession and the value of the won continues to plummet against the US dollar. The South Korean Government in response is urging the carriers to restructure and reduce their debts.
The Korean currency has slipped by more than 15%since the start of the year against the US dollar to reach almost W1,000 and is expected to slip by another 15% as the economic crisis deepens. Jason Kim, Asian-airline analyst with securities house James Capel, says that, on these exchange-rate predictions, it is "virtually guaranteed" that KAL losses for the year will exceed the W210 billion which it posted in 1996. Asiana also ended 1996 with a deficit of W54 billion after heavy exchange-rate losses.
Cathay Pacific has already been severely marked down by analysts, following the collapse of passenger traffic to Hong Kong since the mid-year hand-over to China.
Concerns are echoed by the Association of Asia-Pacific Airlines (AAPA), which represents 18 of the region's main carriers. In its latest annual review, director-general Richard Stirland warns that carriers face an "extremely difficult period" over the next 12-18 months as the underlying economic problems rebound on lower business traffic, falling yields and rising competition. The prospect of in-bound tourism being stimulated by weaker exchange rates has also been "dashed" by worldwide reporting of the "haze blanketing much of the region".
The comments follow latest figures, showing that AAPA members saw a collective 25%fall in operating profits for the financial year to March 1997. Net profits were down by more than $400 million at $1.27 billion. Although passenger traffic grew by 8.6%, ahead of 6.3% capacity rise, the sharp fall in yields left sales virtually unchanged. Costs were also largely kept down, but airlines had to contend with an average 16.6% rise in fuel costs, worsened by a strong US dollar.
Source: Flight International
