Beset by troubles in Asia, Korean Air is looking to Los Angeles.
The airline is coming to depend on L.A. which has the largest Korean population outside of that country for both passenger and cargo traffic, even as it scales back its inter-Asian flights and downsizes its worker base at home.
“The transpacific sector for Korean Air is probably one of the most important sectors, if not the most, in our whole system,” said Bernard D. Akle, the airline’s manager of special projects for the Americas. “We’re committed to this market. We’re in it for the long haul. It’s something where we’ll have to weather the storm, but we’re committed to weathering it.”
John E. Jackson III, marketing manager for the Americas, said that during the Asian economic crisis, Korean Air has maintained almost all of its passenger flights between North and South America and Asia. The only exception, he said, is that during the off season, there are only two flights a week out of Boston; there used to be three.
On the cargo side, which accounts for more than a third of total revenues, Korean Air has kept its flights between the United States and Asia intact. Other carriers, including Philippine Airlines, Japan Airlines and UAL Corp.’s United Airlines, have canceled cargo flights.
In fact, Korean Air now has 43 cargo flights to Asia each week six more flights than it had a year ago. Between 14 and 17 of those flights are out of Los Angeles International Airport.
While the total amount of cargo going from the United States to Asia fell 22.2 percent in August vs. the same month last year, Korean Air’s U.S.-to-Asia cargo was only 12 percent lower.
L.A. is an important center for much of this activity. Korean Air’s cargo terminal at LAX is the largest on the West Coast. While the airline is cutting back positions in other parts of its company, its Los Angeles employment has remained stable, Jackson said. The company has about 385 employees here up from about 315 in early 1995.
Akle said one factor in its favor is the lower cost of jet fuel, which has fallen more than 20 percent because of overproduction and decreased demand for petroleum worldwide.
“The one grace in the whole scenario is the fuel prices,” he said. “They’ve been extremely stable and actually lower than what they were last year, so that has offset a lot of the losses we would incur.”
Though counting on the United States to drive its future growth, can the airline survive long enough to see the market fully develop? After all, Philippine Airlines, also severely hurt by Asia’s economic problems, nearly collapsed earlier this year.
Company officials and analysts say it is unlikely the same fate will befall Korean Air. Not only is the carrier in a better financial position than many of its competitors because of the strength of its parent, Seoul-based transportation conglomerate Hanjin Group, but downsizing and efficiencies are expected to help. Korean Air officials expect the company to rebound from last year’s net loss of $280.9 million and show net earnings this year of $130 million.
Peter Negline, regional airline analyst for Salomon Smith Barney Inc. in Hong Kong, agrees that the company is likely to post a profit, but projects that earnings will be significantly less about $80 million. And, he added, a large amount of that will come from the eight airplanes the airline is selling this year.
One imponderable could be fares. Flights out of the U.S. are not running at capacity, and even those passengers who are going to Asia are paying a lot less about $600 per roundtrip ticket today, several hundred dollars lower than the same ticket a year ago. But Jackson said it is important to keep those flights to maintain customer loyalty something that will pay off when the Asian economic problems ease.
“I think because of that, we’ll be among the first to recover,” Jackson said.
Negline is optimistic for the carrier’s long-term survival. “The times ahead are going to be fairly tough,” he said. “But we think they have done enough to be able to survive though this crisis. As long as it does not get any worse, these guys have got enough restructuring mechanisms in place to get them through this.”
