Korean Airlines Profit from Low Oil Prices

South Korea's largest carrier, Korean Air Lines Co, rose to the highest in about two weeks in Seoul trading on speculation that oil price near a 13-month low will boost earnings.

The airline climbed as much as 5.8% to 40,100 won and traded at 39,750 won at 12:45 p.m. Cathay Pacific Airways Ltd., Hong Kong's biggest carrier, gained as much as 3.4 percent in trading in the city, after falling for six straight days.

The price of oil had its biggest decline since March 2003 last week on concerns that the credit crunch and a slowing global economy will damp demand. That helped cause a 15 percent drop in the price of jet fuel, the single-biggest expense for Korean Air and most other Asian carriers.

“Fuel prices fell to a level that can offset concerns over slowing demand,'' said Um Kyung A, a Seoul-based analyst at Shinyoung Securities Co. “If fuel remains where it is now, global airlines' profit will probably recover from the fourth quarter.”

A rise in the won also helped improve investors' sentiment toward Korean carriers, Um said. Asiana Airlines Inc., the country's second-biggest carrier, climbed as much as 5.7%.

The won, Asia's worst-performing major currency this year, rose 4.9 percent to 1,246.10 against the dollar as of 9:20 a.m. in Seoul, according to Seoul Money Brokerage Services Ltd.

A weak won hurts Korean carriers' earnings by boosting the repatriated cost of dollar-paid fuel expenses and increasing the value of the carrier's foreign-currency denominated debt.

Chinese airlines rose in Shanghai amid a 3.4 percent drop in the benchmark CSI 300 Index. China Southern Airlines Co., the nation's largest, gained as much as 5.3%. Air China Ltd., ranked second, climbed as much as 5.7%. Shanghai Airlines Co. surged as much as 9.9%.

Crude oil for November delivery rose as much as $3.37, or 4.3%, to $81.07 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $80.83 at 9:38 a.m.

The contract fell $8.89, or 10.3%, to $77.70 a barrel on Oct. 10, the lowest settlement since Sept. 10, 2007.

Jet-fuel dropped 6.8% to $91.5 per barrel in Singapore trading on Oct. 10.

Author: Jo Amey