Share this story
Close X
Switch to Desktop Site

Routes have expanded but losses continue at Korean Air Lines

Korean Air Lines, one of Asia's more aggressive air carriers, has not glowed with success.

Though it has substantially expanded its routes since it came under the wing of private ownership in 1969, it still continues to lose money. Like the rest of the international airline industry, an ax has been laid to KAL's profits by high fuel costs, high interest rates, and higher prices for new planes.

About these ads

But not to worry. The airline is part of a 12-company conglomerate in South Korea called the Hanjin Business Group. And KAL's losses are largely offset by domestic and overseas construction activities of the Hanil Development Corporation, another member of the Hanjin group.

From being the country's leading transportation conglomerate, Hanjin has branched out into other sectors, including life insurance, securities, and banking. But its fortunes depend heavily on KAL and Hanil Development.

C.K. Cho, vice-president of KAL and president of Hanil Development, says: ''Yes, we have lost money on the airline for the past couple of years, along with most others in the industry. But the construction side has really done far better than we ever expected.''

Hanjin took over management of the South Korean flag carrier from the government in 1969, when the carrier was in deep financial trouble. The airline was a mere stripling, with a few domestic routes and international flights only to neighboring Japan.

Over the past 12 years, the line has been rapidly built up until now it provides regular services to 28 cities in 17 countries. By 1986 the aim is to expand this to 37 cities in 24 countries.

Earnings growth has been rapid. Last year, revenue finally topped the billion-dollar mark, to $1.075 billion. This year KAL hopes to haul in $1.128 billion from its expanding passenger and cargo services.

But Mr. Cho, younger brother of Hanjin's founder, says the big jump in revenue should not disguise the fact that the airline has its problems.

About these ads

''With the losses of the past couple of years, we have had to hold back our expansion plans and carefully reassess overall strategy. Fuel costs, for example , used to account for about 6 percent of expenditure, but now it's at least 30 percent. You can't establish new routes without first thinking about this. On top of that . . . a new jumbo jet these days has almost tripled in price from a few years ago.''

KAL is contracted to buy at least 10 more 747 jumbo jets over the next five years, with options on eight more. It now has a jet fleet of 38.

Even in this period of caution, the airline hasn't been standing still. Last year it opened a $20 million exclusive cargo terminal in Los Angeles as part of a major expansion of its cargo business, which now takes in the United States, Asia, Europe, and the Middle East.

The big passenger route expansion will have to come before Seoul plays host to the 1986 Asian Games and 1988 Olympics. But in recent days a new service has been inaugurated to Iraq and flights have been increased to Libya. This takes advantage of the growing traffic of Korean workers going to participate in Middle East construction projects.

Mr. Cho thinks that, as Korean construction companies move on to other areas such as South America and Africa, there may be sufficient passenger business to justify KAL's own expansion in the same direction.

Meanwhile, his other interest, construction, also brings him into close contact with the Middle East.

''Hanil has about a billion dollars' worth of contracts in overseas construction now, which is much better than we expected,'' Mr. Cho says. ''Last year we grossed $300 million, and I'm shooting for about $550 million this year. It's a big jump, but we will hack it.

''I am trying to line up at least $500 million worth of new overseas contracts this year, mainly in Saudi Arabia, which will keep us occupied for another three years there.''

At the same time, Hanil is very active in domestic construction, participating in two of the four subway lines being built in anticipation of Seoul's continued growth and its Olympic host role.

''The competition is very severe on price, so our profits are only skin deep, '' he says. ''But with strong management and innovative technology we can cut costs and stay profitable at home and abroad, even if the margin isn't very big.''

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.