Korean Air has recorded an operating profit in 2020, amid the unprecedented COVID-19 crisis

Korean Air recorded an operating profit in 2020 amid the unprecedented COVID-19 crisis.

At its Feb. 4 board meeting, the airline announced tentative financial results for 2020 that include KRW 7.405 trillion (USD 6.806 billion) in sales and KRW 238.3 billion (USD 219 million) in operating profit.

The decline in passenger demand due to COVID-19 continued throughout the year, causing gross sales to fall 40% year-on-year. Passenger sales fell 74% year-on-year. On the other hand, cargo sales increased by 66% compared to last year by increasing the operation rate of freighters and utilizing idle passenger planes. Air cargo sales increased as demand for COVID-19 diagnostic kits and automobile parts increased, with some demand shifting from sea cargo to air cargo.

Operating profit was achieved because of the airline's strong cargo business and company-wide efforts to cut costs. Meanwhile, reduced passenger capacity and falling oil prices lowered fuel consumption and jet fuel costs. Related costs such as facility fees also were reduced due to decreased passenger operations. Labor costs also declined slightly as employees took rotational leaves. Accordingly, total operating expense was reduced by 40% in 2020 compared to 2019.

The airline recorded a net loss of KRW 228.1 billion (USD 209.7 million) due to net interest expense, but the loss was largely reduced from KRW 568.7 billion in net loss of the prior year.

■ Korean Air achieves operating profits based on commitment of its employees and competitiveness of its cargo business

According to the International Air Transport Association (IATA), international passenger demand (revenue passenger kilometers) in 2020 decreased by 75.6% compared to 2019, international cargo demand (measured in cargo tonne-kilometers) dropped by 11.8%. Consequently, most airlines across the world have experienced deterioration in profits.

To address the challenges caused by the pandemic, all Korean Air employees have been taking voluntary rotational leave since April 2020 because most passenger flights have been suspended. The labor unions also are willing to communicate and work together with the company to overcome the unprecedented challenges.

"Korean Air's staff is committed to overcoming the crisis with one heart," said Keehong WOO, Korean Air's president. "It was not a miracle that 2020 was a profitable year. It was only possible thanks to our employees' hard work and sacrifices."

Korean Air's remarkable performance was also based on its achievement in the cargo business. Despite a sharp drop in air cargo capacity, Korean Air fully utilized its 23 freighters, increasing its operation rate by 25% compared to the year before.

"Almost 24% of the global air cargo capacity disappeared last year when airlines suspended most international flights because of COVID-19. However, Korean Air boosted our cargo operations by operating extra/charter freighters to meet the demands of medical supplies such as COVID-19 test kits and masks. We also increased cargo capacity by converting passenger jets into freighters. We've done well to keep our cargo network strong and active," President Woo added.

The airline's strategy to increase cargo capacity by using passenger aircraft resulted in the airline transporting cargo on more than 4,500 flights. Strong air cargo rates, due to reduced global air freight capacity compared to demand, also contributed to the airline's positive performance.

■ Korean Air continues self-rescue efforts, while acquiring Asiana Airlines for the sake of Korean aviation industry

In addition to enhanced cargo operations, Korean Air has expanded its capital and improved its financial structure through various self-rescue efforts such as selling non-core assets.

Last year, Korean Air successfully increased KRW 1.1 trillion worth of capital by issuing new shares and completed the sale of its inflight catering and duty-free business unit at KRW 981.7 billion. Currently, the airline is finalizing the sale of KAL Limousine and Wangsan Leisure Development CO. Ltd.. Also, Korean Air is seeking to secure more liquidity by selling its shares in Hanjin International Corp. that operates the Wilshire Grand Center in Los Angeles, and is discussing the sale of the company's property in downtown Seoul with the Seoul metropolitan government.

Korean Air also is in the process of acquiring Asiana Airlines to stabilize the Korean aviation industry that's suffering from the pandemic and to ensure sustainable growth of the domestic aviation market. Korea is the world's 10th largest economy, and its economic health is important globally.

Despite the crisis the airline industry is facing, Korean Air's decision to acquire Asiana was inevitable to enhance the market's competitiveness and minimize the injection of public funds.

■ Despite prolonged uncertainties in the market, Korean Air will strive to secure more liquidity, improve financial structure and successfully complete the acquisition of Asiana

COVID-induced ambiguities continue to indicate a grim outlook for the aviation industry this year. IATA predicts that passenger demand will remain at 50% this year compared to the 2019 pre-pandemic level. It also expects demand for air cargo will be similar to that in 2019.

Amid these uncertainties, Korean Air will continue its self-rescue efforts to improve its financial stability in 2021.

In particular, the airline will increase KRW 3.3 trillion worth of capital by issuing new shares this March to secure liquidity and improve its financial structure while also resolving financing issues to acquire Asiana. Korean Air also will carry out a PMI (Post Merger Integration) to integrate Asiana Airlines as planned. Employees' voluntary leave also will be continued this year.

As the air cargo market recovers, Korean Air plans to strengthen its cargo business strategies by flexibly adjusting supply and proactively responding to changes in the market. With a task force of specialists in cargo sales and specialized cargo transport, Korean Air has prepared for vaccine transportation that's expected to grow sharply starting the second half of the year when vaccines become widely available.

In contrast to the positive air cargo market, the passenger business is expected to recover slowly. Accordingly, Korean Air plans to maintain the current passenger seat capacity until the end of this year when the market indicates meaningful recovery with the COVID-19 vaccine.

[Table : Financial results for 2020 (Non-consolidated)]

* Unit: billion KRW (million USD)

* KRW/USD exchange rate: 1088.0

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