"Domestic Airline Sector Expected to Post an Earnings Surprise... Beneficiary of a Weaker Won"

[Financial News] Korea Investment & Securities maintained its investment rating of "Buy," saying that the airline sector's earnings in the second half of the year are expected to exceed market expectations, led by major carriers.
On the 8th, Korea Investment & Securities analyst Choi Go-woon said, "International passenger traffic rose 10% year on year in August, exceeding by 3% the peak performance recorded during the winter high season last January," adding, "Achieving an all-time high while airfares have risen by more than 30% is an outcome that exceeded expectations."
The number of transfer passengers at Incheon International Airport also rose 19% in August to an all-time high, while air-cargo volume increased 9% as demand related to artificial intelligence (AI) data centers and semiconductors surged.
Analyst Choi said, "This year's airline market is favorable in every respect except oil prices. Demand fundamentals have improved more than expected, and the exchange rate has fallen sharply. Once uncertainty related to the war stabilizes, the short-term earnings leverage could be as strong as it was during the reopening period," adding, "With oil prices effectively capped on the upside, I believe the more important positive factor now is the exchange rate's sharp decline to the mid-1,300-won range."
He continued, "In fact, the effect of lower exchange rates in the third and fourth quarters is expected to offset the increase in jet-fuel prices, limiting the cost burden," emphasizing, "The airline sector should be watched as a beneficiary of a weaker exchange rate."
He added, "I believe consensus estimates are conservatively underestimating Korean Air's benefits from the air-cargo boom and the pace of Jeju Air's turnaround," noting, "Korean Air, the leading stock in the sector, has reached an all-time high on inflows from foreign investors, stands to benefit the most from air cargo, and is receiving an unprecedented benefit from the merger of the No. 1 and No. 2 full-service carriers in the region, even by global standards."
Analyst Choi also said, "As Korean Air is revalued, investor interest will spread to the low-cost-carrier industry as well," adding, "I recommend Jeju Air as a stock to watch because it is expected to return to profitability the fastest this year."
[email protected] Choi Go-woon Reporter