Margins continue to grow
Korean Air, the flagship carrier of South Korea, announced its third quarter results for the three months ended September 30, 2007. Operating revenue increased by 8.1% to 2,371.8 billion KRW as compared to 2,193.2 billion KRW for the same period last year. Operating income increased by 45.2% to 281.4 billion KRW and net income increased by 3.9% to 131.7 billion KRW compared to the same period last year. Operating income margin increased by 3.1%p to 11.9% for the period under review.
The strong results were mainly attributable to the increase in international passenger revenue and the 6.8% growth in USD yield. Increased traffic during the summer high season and the Thanksgiving holiday fueled the demand for Korean Air’s passenger service. Expanded sales in overseas markets, sales increases for First and Business Class and the addition of charter flights to popular holiday resort destinations, have driven the international passenger revenue up by 9.8% to 1,306 billion KRW in the third quarter of 2007. For domestic passenger operations, load factor and yield have both improved despite a slight decrease of 1.3% in revenue compared to the same period last year.
The cargo operation was another contributor to the profit growth. During the period under review, Korean Air has strategically slowed down the increase in capacity and focused on enhancing profitability by concentrating on high-profit routes and restructuring existing routes. Benefiting from an increase in outbound cargo traffic and effective business strategies, the world’s No. 1 commercial cargo carrier has seen both traffic and profitability improve on almost all routes. Korean Air is also developing new demand in regions such as South America and Africa. In the third quarter of 2007, revenue from cargo operations increased by 6.3% to 631 billion KRW compared to the same period last year with a USD yield returned to a positive 0.2%.
Jonghee Lee, president of Korean Air, said, ‘We have continued to deliver impressive results in 3Q. We are particularly pleased to see the growth in international passenger and cargo margins, which have boosted the overall operating income margin. The exceptional effort of our strong sales team has resulted in higher sales and more orders in both passenger and cargo operations. For the remainder of 2007, we will continue to expand our market, improve our yield, and adopt stringent cost control to create even better value for our shareholders.’
During the period, Korean Air recorded a 4.6% increase in total operating expenses, reflecting increased traffic. Fuel consumption increased by 7.7% while the fuel expense increase was contained at 4.9% due to the lowered marginal unit price and strong KRW.
To meet the robust growth of traffic between Korea and China, a new route was added between Incheon and Zhengzhou, China, in the third quarter. A cargo route was also extended to Munich, Germany, in September. These will help to capture the growing passenger and cargo traffic demand in these two cities and strengthen Korean Air’s global network.
In the third quarter of 2007, Korean Air launched its biggest ever US$19 million global advertising campaign to reinvent its image as a sophisticated, modern and creative airline while the carrier’s drive to deliver ‘excellence in flight’ continued to win world recognition. The World Airline Entertainment Association (WAEA) named Korean Air one of the top airlines for ‘Best Achievement in In-Flight Entertainment’ in the WAEA 2007 Avion Awards. The airline was also named the world’s Best Economy Class in the Skytrax 2006/7 World Airline Awards. Korean Air continued to support cultural activities by sponsoring the Mus’e du Louvre’s new multimedia guide to promote cultural exchange between France and Korea. The new guide is scheduled to be launched in December this year.