Source: Bloomberg News Author: Seonjin Cha 05/06/2008
Subject Concerned: Opinion Airlines Aviation Fuel
Korean Air Lines Co., South Korea's largest carrier, fell for the first time in three trading days in Seoul on concern it would be unable to cover surging fuel prices because of government caps on surcharges.
The airline slid 600 won, or 1.1 percent, to 54,200 won at the close, after dropping as much as 3.7 percent. Asiana Airlines Inc., the country's second-biggest carrier, dropped 2.5 percent to 6,220 won. The benchmark Kospi index rose 0.6 percent.
Crude oil rose to a record US$120.36 a barrel on May 5, boosting the price of jet fuel, most Asian carriers' biggest expense. Korean airlines are unable to pass on all of the rising costs to customers as their surcharges have already reached a government-imposed ceiling.
"There are no positives for airlines on the horizon," said Um Kyung A, an analyst at Shinyoung Securities Co. in Seoul. "Second-quarter earnings will probably be worse than in the first quarter." Um rates Korean Air as "neutral".
Korean Air posted its biggest loss in at least three years in the first quarter because of surging jet fuel prices and a weaker won. The South Korean currency's 7.8 percent depreciation this year has boosted the cost of dollar-denominated fuel bills and of Korean airlines' overseas debts.
Korean carriers in January gained permission to levy surcharges of as much as US$140 on one-way long-haul trips, when the price of jet fuel had averaged at least US$3.09 a gallon the month before. The price averaged US$3.30 a gallon in Singapore last month, according to calculations based on data compiled by Bloomberg. On May 5, the price rose 2.1 percent to US$140.75 a barrel, or US$3.35 a gallon.
The Seoul stock market was closed on May 5 and May 1.