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MARCH 2019

Week 10


Korean Air’s conservative 2023 plan

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March 8th 2019

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Korean Air’s five-year plan may be intentionally conservative. Read More »

“Morning Calm” is a Korean Air marketing term, and perhaps describes its new management plan. Some deem the five-year strategy through 2023 too conservative, and reckon Korean Air can achieve more than it is putting on paper.

Korean Air plans to grow its passenger fleet by 24 net aircraft, ending 2023 with 190 aircraft of unspecified types. This figure does not reflect significant re-fleeting. Korean Air has 68 aircraft on order, mostly narrowbodies, and is mulling a large widebody aircraft purchase.

The fleet growth will enable projected 18.9% ASK growth (3.5% CAGR). Korean Air expects revenue quality improvement, growing yields 11.7% (2.3% CAGR).

The bullish financial aspect may reflect the plan’s origin. It is unusual for Korean conglomerates to have a public management plan.

Korean Air has assembled the plan in response to shareholder activism for transparency and a management over-haul. Activist investor group KCGI has increased its shareholding to 12.01% and is calling for Chairman Cho Yang-ho not to be re-appointed at an upcoming shareholder meeting on 27 March. The activist group does not believe the Cho family holds a majority. While observes expect Chairman Cho to be re-appointed, long-term succession planning may be impacted. Korean Air may need a future management more independent of the Cho family.

The plan may be an attempt for Korean Air to win over investors. Other financial metrics show optimism that should be appealing. Korean Air plans to reduce debt to equity ratio from 699% in 2018 (estimated) to 395% in 2023. This is due to be achieved by growing equity with a minor increase in debt.

Korean Air expects to end 2023 with a 10.6% operating margin, up from 2018’s estimated 5.5%. Korean Air wants to improve its investment grade rating and fight the stereotype of being an under-performing conglomerate.

Others want to see Korean Air have faster but more disciplined growth. This would comprise expanding the airline while improving financial metrics and selling off non-core units, such as aerospace manufacturing.

Korean Air’s management plan also calls for expanded destinations and frequencies to Europe and Southeast Asia. Up to 50% of fuel consumption could be hedged at unspecified parameters.


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