Korean Air Seeks 50% of Sales From Premium Classes on A380s
Korean Air Lines Co. intends to get 50 percent of passenger revenue from premium classes by 2019 as it adds new planes and challenges Singapore Airlines Ltd. and Cathay Pacific Airways Ltd. for business travelers.
“We’re aiming to become a real luxury carrier,” President Chi Chang Hoon, 57, said in an
interview in Seoul yesterday. Business and first-class cabins accounted for about 20 percent of passenger sales last year, he said.
South Korea’s largest airline plans to expand premium- class sales after forecasting a record firsthalf operating profit on rebounding passenger and cargo demand. The airline is counting on the 10 Airbus SAS A380s and 10 Boeing Co. 787s it’s scheduled to receive from next year and service improvements to help lure corporate fliers.
“Ever-increasing competition from low-cost carriers means Korean has to look for a bigger share from premium classes,” said Park Euk Kyung, an analyst at Samsung Securities Co. in Seoul.
“Still, it will be tough to compete with Singapore Air and Cathay Pacific as their home markets are more business-travel focused.”
Korean Air plans to fit 100 first and business-class seats on its A380s, all of which will be on the upper-deck, Chi said. Singapore Air has 60 business class seats on the upper-deck of its A380s with 12 first-class cabins on the lower level.
Cabin Upgrades
Seoul-based Korean Air is overhauling premium-class cabins on existing planes and improving services, Chi said, without elaboration. The airline’s first-class offering has a 4-star rating from research company Skytrax. Singapore Air, which gets about 40 percent of passenger sales from premium cabins, and Cathay both have 5 stars.
Korean Air rose 1.3 percent to close at 78,100 won in Seoul, compared with the key Kospi index’s 0.7 percent gain. The airline has advanced 42 percent this year, the fourth- best performance among the 30 stocks in the Bloomberg World Airlines Index.
The Seoul-based carrier will probably beat its 10.6 trillion won full-year sales target and meet its 1 trillion won operating profit goal, Chi said. In the first half, the carrier probably had an operating profit of 570 billion won ($473 million) compared with a 149.4 billion won loss a year earlier, Chi said, citing preliminary figures. Sales rose about 25 percent, Chi said.
Based on those figures, the airline probably made a second-quarter operating profit of 350 billion won, beating the 252.7 billion won average of 16 analyst estimates compiled by Bloomberg. Chi declined to comment on second- quarter numbers.
Rising Traffic
The airline expects full-year passenger traffic to rise about 10 percent, triple an April forecast, Chi said. Nationwide international passenger numbers jumped 20 percent in the first half to a record 19.2 million, according to the transport ministry. Cargo shipments surged 23 percent to 1.78 million tons.
“Demand is growing a lot faster than we were seeing in the first quarter and it’s gaining speed,” Chi said. Planned fare increases on flights to the Americas, Europe and Oceania from next month will boost yields, he said.
The airline’s cargo operations, the largest carrier of international air-freight, may also surpass the record volumes posted in 2007, Chi said. The government has forecast a 26.4 percent jump in exports this year as U.S. and European consumers snap up Samsung Electronics Co. 3D TVs and Apple Inc. iPads.
The global economic recovery should sustain cargo yields, a measure of revenue, for the rest of the year even as other carriers return freighters to service, Chi said.
Asian carriers are likely to post their first industry profit in three years this year as the region rebounds faster from the global recession than the U.S. and Europe, according to the Association of Asia Pacific Airlines. The region’s carriers lost $11 billion in the past two years, the group said.
“Both the passenger and cargo demand have been exceptionally strong this year,” said Lee Ki Myung, an analyst at Kyobo AXA Investment Managers Co., which manages $4.5 billion worth of assets. “Still, the pace of growth and yield increase will inevitably wane from the second half.”
Bloomberg