Korean Air (KAL) dived into the red in 1996 because of rising fuel charges and the impact of a strong US dollar on its debt burden. Despite the losses, the airline is pressing ahead with plans for a further fleet expansion.
The South Korean flag carrier ended the year showing a loss to the tune of 210 billion won ($242.7 million), reversing losses of 106 billion won profit in 1995. The loss, however, was not as bad as many financial analysts had first expected and, despite an initial fall, KAL's share price quickly recovered.
"It was no big surprise. They have a lot of US dollar denominated debt and it's a problem across Asia. They have also been hit by other negatives, with oil prices significantly higher than in 1995," says Keith Nam of HG Asia Seoul.
The appreciation of the US dollar resulted in a net loss in foreign exchange of nearly 88 billion won, compared to a 62.2 billion won gain in 1995. KAL was also forced to absorb a 30% rise in fuel charges, which accounts for some 16% of its operating costs.
The loss came despite an 8% rise in sales, to nearly 3.7 trillion won, backed by an 11% growth in passenger traffic and 13% for cargo.
Despite the losses, KAL aims to continue its fleet expansion. The South Korean Government has given the airline approval to take delivery of 41 new passenger and freighter aircraft over the next five years, consisting mainly of previously announced orders and options placed with Airbus Industrie and Boeing.
Boeing orders consist of 11 747-400/400Fs, including three for delivery this year, and 12 777-200/300s, two of which will arrive in 1997. KAL has approved two of its eight 777 options for delivery in 1999 and 2000
Korean Air took delivery of its first Pratt & Whitney PW4000-powered Airbus A330-300 on 6 March, and has finalised a follow-on contract for four additional A330s. This takes its total firm orders for the type to 13, plus options on six. The four aircraft, due for delivery in 1998 and 1999, can be either -200s or -300s.
The new aircraft will replace eight Airbus A300B4s, which the airline is now trying to lease or sell, as well as four 747-200s and two 747SPs.
Source: Flight International
