Airline Industry: October Results: Resumption of International Flights
The author is an analyst with NH Investment & Securities. He can be contacted at [email protected] – Ed.
In October, international passenger traffic grew 58% year-on-year, continuing to recover. The volume of freight traffic has reached an all-time high. International flights have gradually resumed since November. Despite some lingering uncertainties, an investment strategy focused on Korean Air is still valid in our view.
Uncertainties persist, but anticipate a further gradual resumption of flights
In October, against a backdrop of continued recovery in international passenger traffic, demand for domestic passenger traffic rebounded rapidly thanks to the effects of the October holidays. Defying fears of an exit spike, freight volume remained healthy, again setting (after September) a new all-time high. Cargo freight rates remain high. Against this backdrop, FSCs are also expected to post solid profits in 4Q21.
International flights are also gradually resuming. In November, services to Thailand (Bangkok), Singapore, Australia (Sydney), New Zealand (Auckland) and Japan (Fukuoka) are all expected to resume. While flight operations are expected to resume gradually by the end of the year, focusing on major tourist destinations, Japan (a main route) is due to resume entry clearance for international students on November 8, ending a suspension that began in January 2021. As demand for overseas travel increases, future passenger traffic will likely be determined by the extent of the resumption of flight routes.
In 2022, annual demand for international passengers is expected to recover by 50% compared to 2019. However, some uncertainties remain due to the growing number of confirmed cases of Covid-19 in Korea and Europe. Given the possibility of a prolongation of the Covid-19 crisis, we continue to offer Korean Air as our first choice, noting the profit-generating power of its freight business, and believing that it will benefit both increased demand for medium / long routes and a growing preference for premium seats.
October results: International passenger traffic + 58% yy; domestic passenger traffic + 20% aa; freight traffic + 12% yy
In October, the number of passengers on international lines amounted to 313,106 (+ 58% year-on-year). The figure is only 4% of that of October 2019, but a gradual recovery nevertheless seems to be underway. The number of passengers on domestic routes has been growing rapidly, climbing 20% year-on-year, both due to a continued recovery in demand (since September) and the effects of the October holiday. By road, the recovery in demand centered on medium / long-distance routes such as the United States and Europe, even Oceania (Guam, Saipan, Hawaii, etc.) has started to respond to the resumption of air operations. in October.
In October, international freight traffic amounted to 289,541 tonnes (+ 11.8% year-on-year, + 1.4% mm), restoring the all-time high recorded the previous month. By airline, the figure increased 11.2% year-on-year at Korean Air and 1.9% at Asiana Airlines. As of November 1, the Baltic Air Freight Index (BAI) stood at 4,247p, trending up for the fourth week in a row.