Korean Air Lines on Thursday reported its first quarterly operating loss in five years, hit by higher oil prices and slowing demand.
Korean Air is expected to benefit from recent falls in oil and fuel prices in the second half, but its outlook remains clouded by a weaker won and a sluggish global economy, analysts said.
Korean Air, also the world's largest air cargo carrier, posted a KRW116.4 billion won (USD$112 million) operating loss in the second quarter on June 30.
The operating loss was the first deficit since the second quarter of 2003, when Asia's airlines were hurt by an outbreak of Severe Acute Respiratory Syndrome (SARS).
The operating loss compares to a KRW75.4 billion profit in the second quarter of 2007 and a KRW19.6 billion profit in January-March of this year.
Jet fuel prices rose 40 percent from the beginning of this year until late July.
Korean Air used 1.2 percent less fuel in the second quarter from a year ago, but spending on fuel, the company's single-biggest cost item accounting for around 40 percent of its operating expenses, surged 80.4 percent.
To help South Korea's airlines cope with higher fuel expenses, the government allowed them to raise surcharges from July.
High oil prices have rattled airlines worldwide. Cathay Pacific Airways, Asia's number 3 carrier, posted a surprise net loss of USD$85 million for the January-June period. World number 2 carrier Singapore Airlines marked a 15 percent fall in second-quarter net profit.
Korean Air also reported a KRW288.9 billion net loss during the April-June quarter, as a weaker won weighed on fuel bills and foreign currency debt servicing costs.
It compares with a KRW214.4 billion loss a year earlier and a KRW325.5 billion loss in the previous quarter.
The softer won currency may hurt demand for overseas trips as South Korean travellers tighten their belts and as it boosts the cost of importing fuel.
"Even during this year's summer vacation, I only see single-digit growth in demand, instead of the usual 10 percent rise for the period," said Han Byung-hwa, an analyst at Hyundai Securities.
The South Korean currency fell 8.6 percent against the dollar in the second quarter from a year ago, according to central bank data.
Reflecting the concerns, shares in Korean Air, valued at USD$3.3 billion, lost 7.9 percent in the second quarter, underperforming a 1.7 percent fall in the wider market.
