Korean Air hit with series of share price downgrades amid Trump tariff uncertainties

A Korean Air aircraft at the Incheon International Airport, Nov. 28, 2024 / Yonhap

Brokerages are slashing their target prices for Korean Air over concerns of a nearly 20 percent drop in operating profit despite record revenue in the first three months of this year, market watchers said Monday.

Falling freight rate margins and Trump tariff uncertainties have painted a bleak outlook for the country's largest flagship carrier in the coming months, they said.

Central to the grim outlook is the flagship carrier’s first quarter profit released Friday.

The record 3.9 trillion won ($2.7 billion) revenue was a 3.5 percent increase from a year earlier. However, its operating profit fell to 350.9 billion won, down 19.5 percent from the 436.1 billion won a year earlier.

Mirae Asset Securities lowered its target price for Korean Air to 30,000 won, down from 33,000 won.

This was the same price revised down by Samsung Securities and Hana Securities. The previous price set by Samsung was 35,000 won and 33,000 won by Hana.

Mirae Asset said fuel costs dropped 6.3 percent from the previous year, led by lower unit fuel prices.

However, it failed to offset a sharper-than-expected increase in other costs, driven by a weak Korean currency relative to the U.S. dollar.

Maintenance and freight costs related to airport operations also increased.

Similarly, Hana Securities said costs for labor, airport and passenger services and depreciation rose by 13 percent, 8 percent and 21 percent, respectively.

Most unexpected factors were related to buying new aircraft to replace older ones. The weak Korean won led to an increase in airport services and freight fees.

Shares of Korean Air traded at 21,100 won as of 2:30 p.m. Monday. This was a slight recovery from the previous low of 19,900 won on Wednesday. The figure is a significant drop from a high of 24,950 won on Feb. 27.

Analysts say the share prices will not be able to find upward momentum as they are weighed down by the escalating U.S.-China tariff war and the subsequent decline in the carrier’s second-quarter revenue.

“Sales will face downside pressure from the second quarter,” Hana Securities said.

U.S. tariffs on Chinese goods rose to up to 145 percent, while the tax exemption on goods of up to $800 has been scrapped. These combined factors will result in a slowdown in air cargo demand to the U.S. from China for the time being, Hana said.

A Korean Air official declined to comment on the firm's share price downgrades, only saying that "We have nothing to comment."

The official then said the airline's first quarter performance was robust. "We expect this trend to continue in the next quarter, especially with the long vacation in early May bolstering overseas travel demands."