Korean Air, Asiana Slide Following Record Jump in Oil

Source: Bloomberg News    Author: Seonjin Cha    06/09/2008

Subject Concerned: Airlines   Aviation Fuel   

Korean Air Lines Co., South Korea's largest carrier, led declines among Asian airlines after a record jump in crude oil prices boosted the cost of jet fuel.

The carrier dropped 3,000 won, or 5.6 percent, to 51,000 won as of 11:06 a.m. in Seoul trading, the biggest decline in almost three months. Asiana Airlines Inc., South Korea's second-biggest airline, lost 4.7 percent to 5,680 won.

Korean Air and other Asian carriers have raised fares, cut flights or fired workers in a bid to cope with jet-fuel prices that have doubled in a year. The cost of jet fuel, most Asian carriers' biggest expense, has surged in line with the price of crude oil, which jumped 8.4 percent to US$138.54 a barrel in New York on June 6.

"Korean carriers are coming up with various measures to counter fuel cost, but that won't be enough to cover rising oil prices," said Yun Hee Do, a Korea Investment & Securities Co. analyst in Seoul. He rates Korean Air and Asiana as "buy".

Korean Air last week said it will begin levying fuel surcharges on domestic routes from July. Asiana is asking employees to take voluntary unpaid leave. Both carriers are scaling back their international services.

Other Asia-Pacific carriers also fell after the June 6 oil price jump, which was the largest ever, one-day rise in dollar terms and the biggest as a percentage since June 1996.

Jet-Fuel Price

Air New Zealand Ltd., New Zealand's largest carrier, dropped 4.3 percent to NZ$1.12 at 2:09 p.m. in Wellington trading. The airline on June 6 announced that it planned to raise fares and cut some services.

Japan Airlines Corp. fell 2.5 percent to 237 yen at the 11 a.m. trading break in Tokyo. All Nippon Airways Co. slipped 1 percent to 396 yen. Singapore Airlines Ltd., Asia's most profitable carrier, slid 2.3 percent to S$15.40 as of 11:10 a.m. in the city.

Jet-fuel prices climbed 3.8 percent to US$162.15 a barrel in Singapore trading on June 6. Spiraling fuel bills may cause global carriers to post combined losses of as much as US$6.1 billion this year, according to the International Air Transport Association (IATA).

China Airlines, Taiwan's largest carrier, today said it will cancel about 10 percent of flights from June, becoming at least the sixth major Asia-Pacific airline to announce cuts in two weeks. The airline will axe 100 passenger services a month, spokesman Bruce Chen said by phone on June 9. The shares fell 5.7 percent to NT$14.85 at 9:24 a.m. in Taipei trading.