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   Vol. 14  No. 66
Monday August 17, 2015

Is Korean Air Reeling in the Years?

Is Korean Air Reeling In The Years?

A host of external factors have battered the Korean economy this year.
     The MERS virus caused widespread panic and the loss of a more than 30 lives, which has had a dampening effect on domestic demand, consumer confidence, and tourism.
     Moreover, exporters—especially in the critical electronics sector—have been faced with a weaker Japanese Yen and poor demand from Europe.
     This saw the current government downgrade its GDP growth forecast for 2015 to 3.1 percent from 3.8 percent previously.
     So as the national carrier, Korean Air has had plenty on its plate thus far this year.


Upbeat About Air Cargo

     However, the carrier is remarkably upbeat about its freight operations.
     According to Korean Air Cargo executives, rather than looking at negatives, it has instead been focusing on targeting niche markets, concentrating on the Trans-Pacific lanes where it faces less competition from Middle Eastern rivals than in Europe, and ensuring its fleet is as economical as possible.
     A spokesperson told FlyingTypers that the carrier had seen a gradual improvement in its freight performance last year as the global macroeconomic situation improved, but the carrier was still seeking “growth in quality” to counteract excess capacity and the pressure this was putting on yields.
     “An additional five B747-8F and four B777Fs were introduced last year and continuous investment in a fuel-efficient fleet is set to continue,” said the spokesperson.


B777s To The Rescue

     “Our B777F fleet is an eco-friendly fleet with remarkable fuel efficiency that is expected to fulfill regulatory compliance and sustainability regarding EU’s carbon emission trading and similar movements elsewhere in the market.
     “This proactive strategy will help increase fleet operation hours by introducing more B777Fs into network planning.”


Out With the Old?


     Although Korean Air Cargo was reluctant to discuss its plans for its older freighters, the carrier did say it planned to expand its network by seeking out under-explored markets, as illustrated by its recent launch of a new direct service from Vietnam to Europe and the strengthening of its Central/South American network via an enhanced interline service agreement with regional carriers.
The emphasis on Trans-Pacific markets will also remain a strategic feature. Out of 1.5 million tons of demand handled by Korean Air in 2014, North America and European routes comprise 40 percent and 23 percent respectively, a ratio that further diverged in the first quarter of this year when the respective market shares of North America and Europe were 42 percent and 20 percent.
     “As Middle East carriers approach the Far East-Europe market via aggressive pricing, rate competition in the lanes has become excessive considering the sluggish signals of the European economy,” said the spokesperson.


USA Major Driver

     “In contrast, U.S. economic recovery has gained its momentum, which has resulted in an increase in demand for capacity.
     “Looking at tonnage results from the first quarter, both ex-Korea and transit increased by 6 percent. In terms of freight ton kilometers by route, the Americas showed the biggest leap by +25 percent while other lanes such as Oceania (+21 percent) and Japan (+18 percent) showed promising growth.”
     KR’s Cargo division now generates almost a quarter of Korean Air’s sales profit, said the spokesperson.
     “According to IATA forecasts, in 2015 global air cargo will grow around 4.5 percent with global recovery helped by momentum from the U.S. market.”
     To make the most of this growth and offset risk in its home market, Korean Air is now seeking “collaborative relationships” with major shippers and global forwarders. The operator is also looking to niche markets including cold chain, e-commerce, and fresh gourmet verticals and solutions to further generate sales.
     “We’ve also had a boost in recent months due to maritime congestion in U.S. West Coast ports,” said the spokesperson. “Auto parts and consumer perishables temporarily turned to air logistics demand. This resulted in a drastic increase in performance compared to last year’s figures.”
SkyKing

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