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Korean Air targets record operating profit on A380s

Korean Air, the country’s largest carrier, forecast record operating profit this year as it seeks to lure more premium-class travelers and begins to operate Airbus SAS A380 superjumbos.

Operating profit, or sales minus the cost of goods sold and administrative expenses, may rise 14 percent to 1.28 trillion won ($1.1 billion), the company said in an e-mailed statement Thursday. Sales may increase 8.8 percent to 12.5 trillion won.

Korean Air will begin flying its first A380 plane in June as it challenges Singapore Airlines Ltd. and Cathay Pacific Airways Ltd. with a bid to get 50 percent of revenue from business-class and first-class passengers by 2019. The Seoul- based carrier will receive five A380s this year, all of which will have all-business class upper decks.

“Korean Air needs to attract more premium customers,” said Jee Heon-seok, an analyst at NH Investment & Securities Co. in Seoul. “Demand for these seats is expected to grow as economic growth in Asia enables people to earn more money.”

The company forecast passenger traffic to rise 8.3 percent this year from 2010 and cargo traffic to gain 3.8 percent, according to the statement.

The carrier has a total of 10 A380s on order.

The airline said it plans to spend 2.33 trillion won this year, 33 percent more than in 2010, to pay for aircraft purchases. It will have 139 aircraft at the end of this year, from 128 at the end of 2010.

Korean Air made its 2011 projections based on an oil price of about $85 a barrel and it assumed the won will average about 1,150 won against the U.S. dollar.

The airline’s fourth-quarter net income dropped 18 percent from a year earlier to 69.6 billion won after the won appreciated more slowly. That was lower than the 201.3 billion won average of 21 analyst estimates compiled by Bloomberg.

Operating profit increased 23 percent to 188.8 billion won and sales advanced 12 percent to 2.9 trillion won in the October-December period, the company said.

The airline made a 25.3 billion won foreign-exchange loss compared with a 156.2 billion won gain a year earlier. The won appreciated 0.3 percent in the last three months of the year, the company said.

International passenger traffic, which accounted for more than half of Korean Air’s revenue in the fourth quarter, rose 6.5 percent from a year earlier spurred by higher demand on U.S. and China routes, the company said. Cargo traffic increased 1.7 percent. 

(Bloomberg)
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