Korean Air posted a net profit for the April-June quarter as it carried more passengers, but shares in South Korea's top airline fell 3 percent as investors fretted about further oil price rises.
A possible slowdown in what is now Asia's third-biggest economy will add to pressure on the airline, analysts say, though a promising third-quarter summer travel season should keep passenger traffic healthy.
The airline, which has 118 aircraft and operates almost 400 passenger flights a day, has said it aimed to boost operating profit by about 30 percent in 2006 to more than KRW560 billion won (USD$584 million) and to raise sales by about 10 percent to above KRW8.3 trillion (USD$8.65 billion).
Min Byung-chool, Korean Air's vice president for finance, said at an investors' meeting that oil hedging would allow the company to meet the operating profit target.
April-June net profit was KRW14.9 billion (USD$15.5 million), beating a year-earlier KRW42.5 billion (USD$44.3 million) loss, but down sharply from a KRW127.3 billion (USD$132.7 million) profit in the previous quarter.
The bottom line was boosted by strong passenger traffic and by a won that was 8.1 percent higher at end-June than a year ago, which helped offset higher costs for fuel and foreign currency debt servicing.
Korean Air said it hedged up to 20 percent of its monthly fuel needs in the second quarter, but operating profit fell as fuel costs rose by more than a fifth to KRW538.7 billion (USD$562.5 million), or more than 30 percent of second-quarter revenue.
Operating profit fell to KRW69 billion (USD$71.9 million) from KRW77.2 billion (USD$80.5 million) a year earlier.
The company, which is eyeing China and other markets to help fuel earnings growth, is in talks with China Southern Airlines and other companies to form a cargo joint venture, Min said.
"Southern Airlines proposed a joint investment to set up a cargo-only airline, and we are reviewing the proposal," said Min, adding the Chinese airline wants a response by the end of August.
Smaller rival Asiana Airlines on Tuesday said it swung to a net profit in the second quarter thanks to healthy passenger traffic and cargo shipments.
Analysts have warned that both Korean Air and Asiana, which dominate the domestic market, may struggle to pass on further oil price rises to passengers as they have already raised fuel surcharges to the maximum allowed by the South Korean government.
Korean Air said quarterly sales rose 8.7 percent to KRW1.94 trillion (USD$2.02 billion), with revenue from international passenger traffic up by 14.2 percent and cargo business up by 4.5 percent.
