South Korea’s two full service carriers – Korean Air Lines Co. and Asiana Airlines Inc. – were directly hit by the hikes in the won/dollar exchange rates in the first quarter of this year. Asiana Airlines saw its operating profit decrease nearly 90 percent, showing that it was more vulnerable to external factors than Korean Air.
Korean Air announced on May 15 that it posted 148.20 billion won (US$124.49 million) in operating profit from January to March based on separate financial statements, down 16.2 percent from the same period a year ago. The company’s sales grew 1.1 percent to 3.05 trillion won (US$2.56 billion) and its net loss stood at 34.20 billion won (US$28.73 million) over the same period.
Asiana Airlines announced on the same day that its operating profit in the first quarter had a whopping 89.1 percent decrease to 7.20 billion won (US$6.05 million) from a year earlier. Its sales reached 1.72 trillion won (US$1.45 billion), similar to the figure a year ago, while its net loss stood at 89.20 billion won (US$74.93 million).
The main reason for the two firms’ poor performance is the decline in the value of the Korean currency. The airline industry estimates that Korean Air and Asiana Airlines suffer foreign currency translation losses of 80 billion won (US$67.20 million) and 23 billion won (US$19.32 million), respectively, when the exchange rate of the Korean won against the U.S. dollar increases 10 won (US$0.01). The rate was 1,118.1 won to the U.S. dollar at the end of last year but it surged to 1,137.8 won in March this year.
In particular, Asiana Airlines showed how vulnerable the company is to external factors. The company’s consolidated debt rate reached 895 percent in the first quarter due to changes in accounting standards for aircraft operating lease this year. The firm said, “We expect that the debt rate in the first quarter will plunge 400 to 500 percentage points from the first quarter when the company receives financial support from creditor banks.”