Strong outbound traffic flows from Korea and the opening of new markets have allowed Korean Air (KAL) to brush aside initial concerns about declining numbers of Chinese tourists. Now, with the October 31 announcement of normalization of relations between the two countries, KAL stands poised for a full rebound.
In protest of Seoul’s installation of a U.S.-owned THAAD missile system in its territory, the Chinese government banned tour operators from organizing group tours into South Korea. As a result, KAL’s second-quarter results reflected a 26-percent drop in traffic between China and Korea compared with a year earlier.
“North Korea and China issues have affected operations throughout the year, but since total revenue is more spread out across the world we have grown in other regions and covered the decline in numbers from China and Japan,” said Walter Cho, KAL president and COO. “Inbound demand hasn’t suffered as much as what most people think, and the outbound market was very strong from Korea, especially to destinations in Taiwan, Vietnam, Europe and the U.S.”
Despite the fact that more airlines have started nonstop flights from the U.S. West Coast to Asia, Cho said he thinks the potential market share for Korean Air has grown. “Los Angeles and San Francisco are big markets; we have expanded on these markets and a there is room for more growth,” he said.
In terms of its fleet, KAL plans to take delivery of its fifth Boeing 787-9 in December, and two more in 2018. Cho said the airline would consider still more 787s to replace its older 777s.
Korean also planned to receive up to seven Bombardier CS300s this year, but supply shortages of Pratt & Whitney PW1500G turbofans have forced delivery delays. Cho said he now expects delivery of the first airplane by the end of this year.
“I have no doubt that Bombardier and Pratt & Whitney make a good airplane and engines; they just need more time," he said. Cho also expressed enthusiasm about Airbus’s plans to take a controlling stake in the C Series program next year. “The CSeries is a very good plane, but it would have faced a very big challenge competing with Airbus or Boeing,” he added. Now that they're cooperating with Airbus, it's a very good opportunity for Bombardier to start marketing the airplane to more customers around the world.”
KAL has now turned its focus toward a joint venture with Delta Air Lines, which, according to Cho, soon should gain regulatory approval in the U.S., followed by Korea. He said he hopes to tap into Delta’s massive domestic market in the U.S. as well as the Latin American market.
“We are seeing strong demand to Latin and South America, and as we do not plan to fly there, we can use Delta’s network to serve our customers there,” Cho told reporters.
KAL also hopes to move into the new Seoul Incheon Terminal 2 with other Sky Team airlines by early next year. “We are starting to feel tight in terms slot at Incheon, but we have more problems in China and Asian countries. But recently we’ve seen it go over capacity during the weeklong national holiday in October. The new terminal will provide more convenience to our customers ”