Korean Air reported an operating profit last year despite the big aviation hit of the coronavirus pandemic, which it attributed to a boost in cargo sales and its wide-ranging cost saving measures.
The South Korean flag carrier said it earned KRW 7.405 trillion (US$6.806 billion) in sales and KRW 238.3 billion (US$219 million) in operating profit in 2020 according to its tentative financial results for the year, although it cited a decline in passenger demand due to COVID-19 throughout the year, causing gross sales to fall 40% year-on-year and passenger sales to drop 74% year-on-year.
On the other hand, it said cargo sales increased by 66% compared to last year by increasing the operation rate of freighters and utilizing idle passenger planes.
Increase in cargo sales
It noted that air cargo sales increased last year 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,” Korean Air said in a statement, adding that related costs such as facility fees also were reduced due to decreased passenger operations.
The airline noted that based on International Air Transport Association (IATA) estimates, international cargo demand (measured in cargo tonne-kilometers) dropped by 11.8% last year, causing most airlines aroun the world to experience decline in profits.
Nonetheless, it said Korean Air posted growth due to the collective effort from the whole team to overcome the crisis.
“It was not a miracle that 2020 was a profitable year. It was only possible thanks to our employees’ hard work and sacrifices,” said Keehong WOO, Korean Air’s president.
He added that 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,” WOO said, adding that the airline also “increased cargo capacity by converting passenger jets into freighters.”
Korean Air’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.
Grim outlook for 2021
Korean Air said “COVID-induced ambiguities continue to indicate a grim outlook for the aviation industry this year.”
It said 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 said it will continue its self-rescue efforts to improve its financial stability in 2021.
“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,” the airline said.
“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,” it added.
In contrast to the positive air cargo market, it said passenger business is expected to recover slowly.
