Shinhan Investment Securities said on the 26th that the recent decline in the exchange rate could, in the short term, improve investor sentiment for airline stocks. The firm said that if the exchange rate enters a stabilization phase, a trading approach (short-term buying and selling) to airline stocks would be feasible. However, it maintained a neutral rating on the sector.
Choi Min-gi, an analyst at Shinhan Investment Securities, said, "The biggest factor that disadvantages domestic airlines on the operating expense side is the exchange rate," and added, "Given their structure with a high share of foreign currency payments, if the exchange rate stabilizes, a short-term trading approach to airline stocks becomes possible."
Airline stocks are traditionally considered highly sensitive to exchange rates. A significant portion of operating expenses, including maintenance costs, insurance premiums, and jet fuel, is tied to the dollar. In addition, as international routes have recently expanded, airport-related costs are also seeing a rising share of foreign currency payments. Demand from Korean travelers is also heavily affected by exchange-rate fluctuations.
Choi picked Korean Air as a stock to watch. Choi said, "Low-cost carriers (LCCs) have increased their share of international routes compared with the past, but they still have a high proportion of routes departing from Korea, making them highly dependent on won-denominated revenue," and added, "By contrast, Korean Air generates foreign-currency revenue through inbound passenger traffic and its cargo business, which can partly offset exchange-rate risk."
Choi added, "Korean Air is the only airline that meaningfully executes currency hedging even while bearing the hedging expense," and said, "With financial instability issues persisting among long-haul LCCs, an approach centered on Korean Air is necessary."