Korean Air Profit Increases by 72% in 2006

Korean Air has reported its fourth quarter results for the three months ended December 31, 2006. Operating profit increased by 455.1% to 143.4 billion KRW and net profit increased by 157.8% to 75.7 billion KRW compared to the same period in 2005 (when the figures were 25.8 billion KRW and 29.4 billion KRW respectively). The results concluded a strong year in 2006 for Korean Air, during which the airline recorded full year net profit of 344.7 billion KRW, representing a 72% increase from 2005.

The excellent results in 2006 were attributable predominantly to greater demand for air travel. The exchange gains from the strong Korean currency, lower oil prices towards the end of the year and effective cost control across the board all contributed to the strong performance of Korean Air in 2006.

Jonghee Lee, president of Korean Air, said, “Korean Air benefited from the regional economic recovery in 2006 which boosted the demand for long distance travel. The easing oil price also helped lower our operating costs. In addition to the favourable external factors, I give great credit to our team for their insight and flexibility in overcoming challenges and capturing business opportunities. The fast changing market and keen competition will again put our ability and strategies to the test in 2007. We will leverage our past success and continue to create value for our shareholders.”

Total revenues for the fourth quarter of 2006 increased 6.7% to KRW 2,115 billion compared with 1,982 billion in the fourth quarter of 2005. Despite a 4.5% increase in fuel expense, total operating expenses only edged up 0.8% compared to the fourth quarter of 2005, thanks to the stringent cost control measures.

International and domestic passenger revenues increased by 15.6% and 4.7% respectively in the fourth quarter of 2006, as compared to the corresponding period in 2005. Although strong competition has compromised load factors and yields on China routes, other international routes showed strong demand, exceeding the supply increase. The airline recorded a 13.6% increase in yield for international passengers in the fourth quarter of 2006 compared to the same period of 2005.

The price and availability of jet fuel significantly affect the airline’s operating results. The average jet fuel price slightly increased 2.1% to 197 cents per gallon and fuel consumption increased 12.5% in the fourth quarter of 2006. The company has been managing its fuel risk exposure by hedging 34% of forecast fuel consumption during the period.

During the fourth quarter of 2006, two used B747-400 aircraft were returned from Air India following the lease expiry and the company took delivery of one new B737-800 passenger aircraft under operating lease. One passenger aircraft was converted for cargo use. As at the end of 2006, Korean Air maintained a strong fleet of 101 passenger aircraft and 20 freighters.

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