Freighters To The Rescue: Korean Air Posts Q2 Profit

Korean Air leveraged its cargo operation to turn a profit in the second quarter when nearly every other passenger airline has reported enormous losses after COVID-19 travel restrictions brought most flight operations to a standstill. 

The South Korean carrier has one advantage that many pure passenger airlines lack – freighters. The company said it increased the operation rate of its freighter fleet and maximized cargo supply on passenger airplanes to generate an operating profit of $123.7 million and net income of $135.3 million.

Korean Air lost the ability to sell cargo space in the lower deck of passenger airplanes when travel demand sagged and it suspended most flights, resulting in a 92% drop in passenger revenue. The airline said it replaced that capacity by increasing the operation rate of freighters by 22% year-over-year through strict maintenance checks and oversight – increasing its total capacity by 1.9%.

The freighter fleet consists of 23 Boeing 747-8 and 747-400 aircraft, according to the airline's website. It ranked as the sixth-largest cargo airline in the world in 2018, according to the International Air Transport Association.

Freight-to-kilometers, an industry measure of sales that combines weight and distance, grew 17.3% from the second quarter of 2019 and cargo sales increased 94.6%, or $496 million, to $1 billion. 

Korean Air said demand for domestic flights has been recovering since April and demand for international flights has been gradually improving since June. 

The airline plans to maximize revenue in the second half by transporting time-sensitive, high-priced cargo such as disinfection products, e-commerce products, semiconductor devices and automobile parts. It also will add capacity by taking seats out of passenger aircraft to use them as mini-freighters. 

Other airlines – Air Canada, IAG Group, Air France-KLM, United Airlines – were able to grow cargo revenues in the second quarter despite the loss of available belly space by flying dedicated "preighters" and putting cargo in the cabin. The cash generated from cargo remarkably was the largest source of revenue for these airlines, but it wasn't enough to keep them out of the red.

And having a freighter fleet doesn't guarantee a hybrid airline will be profitable. Lufthansa Group [LSE: LN], which operates a large fleet of all-cargo planes, recorded negative earnings before interest and taxes of 1.7 billion euros ($2 billion), impacted by an 80% drop in revenue. Cargo supported the rest of the company, generating 79% of the group's $2.2 billion in revenue.

And Hong Kong-based Cathay Pacific recently warned that it expects to incur a loss of $1.3 billion for the first half of 2020. It said cargo tonnage fell 5% in June from May as demand for medical supplies waned. Cathay is operating about 10% of its normal passenger schedule this month.

In related news from Asia, All Nippon Airways said it used passenger airplanes as freighters during the quarter ended June 30 to keep international cargo revenue close to last year's level. International cargo revenue decreased 2.7% while domestic cargo sales fell 41.5%. Overall, revenues fell 76% to 1.2 billion yen ($971 million), resulting in a $1.3 billion operating loss.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch. Contact: ekulisch@freightwaves.com

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