Korean Air sustains Strong Growth in 1Q 2007

Korean Air has reported its first quarter results for the three months ended March 31, 2007. Operating income increased by 66.1% to 151.4 billion KRW as compared to 91.1 billion KRW for the same period last year. Net income increased to 130.8 billion KRW, representing a 2.7% increase year on year.

Jonghee Lee, president of Korean Air, said, “The strong growth in operating income opened a good year for Korean Air in 2007. The growth was a result of calculated expansion, yield improvement, stringent cost control and effective risk management. These will also be our guiding strategies for the rest of the year in a bid to sustain our growth and profitability.”

Total revenues for the first quarter of 2007 increased to 2,030 billion KRW, representing an increase of 10.7% as compared with the 1,834 billion KRW for the same period in 2006. Korean Air imposed stringent cost control measures across the board and reorganized its expenses structure. As a result, the increase in operating expenses was contained at 7.8%.

Korean Air recorded encouraging growth in international passenger revenues in the first quarter of 2007, which increased by 19.3% to 1,090 billion KRW year on year, reflecting healthy demand and yield improvement (11.3% increase), as well as Korean Air's continued drive to enhance passenger comfort and service. The China routes achieved well above-average growth in ASK (Available Seat Kilometers) and RPK (Revenue Passenger Kilometer), which led to a strong growth in revenue. Newly launched China routes are expected to stabilize. Coupled with the anticipated strong growth in business air travel between America and China, the prospects for the international passenger business are promising. Route restructuring continued to adversely affect the domestic passenger business during the reporting period, which showed a 4.3% decrease in revenue.

Cargo operations saw outbound air cargo shipments from Korea continuing to slow down because of the strong KRW and relocation of production lines outside Korea. The decline was offset by strong demand from regions such as S.E. Asia, China and Japan, as well as effective marketing efforts, which combined to contribute to a 11.9% increase in traffic and 0.6% increase in revenue.

Even though the price of fuel still remains at the historical upper end, the price eased slightly in the first quarter due to rationalized market demand. The company has been managing its fuel risk exposure by hedging 21% of forecast fuel consumption in the fourth quarter of 2006.

On March 2nd 2007, Korean Air together with its two affiliates (Hanjin Shipping Co. and Korea Airport Service) formed a special purpose company, Hanjin Energy Co., Ltd., to acquire 28.4% treasury shares of S-Oil. The move will enable a stable supply of refined products for Korean Air in the future.

During the first quarter of 2007, the company took delivery of one new passenger aircraft on an operating lease and converted two passenger aircraft (one B747-400 and one A300-600R) to cargo aircraft. Korean Air has a strong fleet of 122 aircraft as of March 31, 2007.

Korean Air opened new passenger routes to Vienna, Austria in the first quarter of 2007 and new cargo routes to Moscow and Chengdu.

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