What Good Is Record Demand? Airline Stocks Hit by 'Oil Price Shock'

Airline stocks have been unable to rally despite an increase in passenger traffic last month. Concerns are mounting that soaring oil prices, driven by risks emerging from the Middle East, will hurt profitability. According to the Korea Exchange (KRX) on the 15th, the KRX Transportation Index, which includes airline stocks, has plunged 12.79% so far this month. This marks a reversal after gains of 11.91% in January and 15.41% in February. Over the same period, Korean Air fell 13.52%, Asiana Airlines 9.79%, T'way Air 16.01%, and Jeju Air 13.79%.
Even record-high demand last month could not offset the negative impact of rising oil prices caused by instability in the Middle East. In the airline industry, fuel costs account for about 30% of operating expenses, making it one of the sectors most vulnerable to high oil prices.
According to Airportal, operated by the Ministry of Land, Infrastructure and Transport, the total number of passengers on domestic and international routes last month reached 10,740,243. It was the first time that monthly passenger traffic in February exceeded 10 million.
However, international oil prices have become highly volatile since the outbreak of war in the Middle East. On the 13th (local time), West Texas Intermediate crude oil (WTI) futures on the New York Mercantile Exchange (NYMEX) settled at $98.71 per barrel, up 3.11% from the previous session. On the same day, Brent crude oil futures on the Intercontinental Exchange Futures Exchange (ICE Futures) rose 2.67% to $103.14 per barrel.
The surging exchange rate is also seen as a negative factor for airline stocks. On the 13th, the weekly closing level of the won–dollar exchange rate at 3:30 p.m. came to 1,493.7 won, up 12.5 won from the previous trading day.
Lee Jae-hyuk, an analyst at LS Securities, stated, "Despite exceptionally strong demand, a less favorable environment has formed due to rising international oil prices following the United States–Iran war and a rebound in the won–dollar exchange rate." He added, "Because there is a time lag before oil prices and costs are fully reflected, and passenger demand remains solid, the impact on first-quarter earnings should be limited. However, it will be important to continue monitoring macroeconomic conditions."