Korean Air returns to profit in 1Q2014 on the back of yield recovery and cost discipline

One key topic in Asian aviation is when airlines will slow capacity growth and even consolidate. Partnership is the order of the day. But capacity discipline is already in play in Korea where largest carrier Korean Air returned to profit in 1Q2014. Capacity was down 2% but revenue was up 0.3% while costs decreased by 5.0%.

Korean Air reported a KRW68 billion (USD63.5) million reduction in its fuel bill, a reduction of 6.2%, faster than Korean Air's rate of reduced flying. The lower fuel bill is consistent with regional trends. More encouraging was Korean Air's cost discipline: labour costs fell by 11%, or KRW51 billion (USD47.6 million), a sum not far off from Korean Air's fuel savings. Whereas fuel costs are broadly outside an airline's control, Korean Air has re-asserted control over manageable costs like labour.

Europe, China and the domestic Korean market saw drastically improved performance while other regions saw revenue decreases slower than capacity reduction. While Korean Air is now out of the doghouse, its operating margin is less than 1% and it posted a net loss.