South Korea’s No. 1 full-service carrier Korean Air Lines Co. extends stock rally this week as it is expected to report a strong turnaround in the second quarter on robust air freight business on top of securing debt relief through state-led arrangement for COVID-19 rescue.

According to HI Investment & Securities Co., Korean Air Lines is estimated to report an operating profit of 88 billion won ($72.2 million) in the April-June period on sales of 1.92 trillion won. Hanwha Investment & Securities Co. forecast the carrier would deliver an operating profit of 19.0 billion won with revenue of 1.71 trillion won in the period.

Both expected the airline to reverse to black from red in the previous quarter when its fleet was mostly grounded due to coronavirus pandemic.

Passenger travel remains mostly at standstill, but the full-service carrier has benefited from strengthened air freight rates and cheap jet fuel.

Freight deliveries have kept the airliner busy due to strong demand for Korean medical and chip supplies.

According to data from TAC Index, air freight rates from Hong Kong to North America averaged $5.7 per kilogram in April, jumping 58.1 percent from a year earlier. The average rates from Hong Kong to Europe surged 86 percent to $4.9 per kilogram during the same period.

Over the same period, Korean outbound travelers plunged 98 percent on year to total 93,489.

“It would take longer for travel demand to recover to the levels before the virus outbreak,” said Ha Jun-yeong, an analyst at HI Investment & Securities. “The price of air freight, however, will likely continue to strengthen until the end of this year.”

Kim Yu-hyuk, an analyst at Hanwha Investment & Securities, also noted “the freight rates have risen fast amid surging global demand for Korea-made COVID-19 testing kits and other medical supplies.”

The levels are already 20 to 30 percent higher than the previous peaks in its heyday between 2010 and 2017, he added.

Korean Air Lines relied 50 percent of its revenue on passenger flights and 27 percent on freight services as of the first quarter. Of the revenue from its cargo business, 40 percent came from North America, 23 percent from Europe, 17 percent from Southeast Asia, and 13 percent from China.

Given that nearly half of all cargoes are transported on the routes to Asia, North America and Europe, the carrier is expected to see a significant rebound in profitability of its freight business, said analysts.

Another good news is the low air fuel prices that average $27 per barrel as of June, 60 percent lower than a year ago thanks to still weak international oil prices.

Korean Air Lines reported an operating loss of 82.8 billion won on a consolidated basis in the quarter ended March, its first red figures on the income statement since the third quarter of 2015. Net loss stretched to 736.9 billion won in the quarter, and sales slid to 2.43 trillion won.

Shares of Korean Air Lines on Thursday rose 2.46 percent to close at 22,900 won in Seoul.

By Song Gwang-sup and Lee Ha-yeon

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]