Air Transport World

The yin and yang of Korean Air: the airline appears to have achieved an operational and safety rebirth that is paving the way for a new era of growth and profitability.(Statistical Data Included)

Not all of the news coming out of the airline industry these days is bad. At Korean Air, a team of outside experts has laid the groundwork for a permanent fix to the operational and safety failures that dogged the airline for much of the past two decades. This in turn has created an atmosphere in which the planning, marketing and sales divisions can begin to exploit the strengths of a diversified network offering some 400 flights per day to 83 cities in 29 countries from an ideal location at the crossroads of northern Asia.

As a result, more than two years after the launch of SkyTeam KAL appears ready to take a key role in helping to push the late-blooming alliance into the first tier of global partnerships. "Corporate restructuring is bringing us back to profitability and we have revamped our organizational structure into profit and cost centers to reinforce responsibility and establish accountability, while providing greater management flexibility," says Chairman and Co-CEO Yang Ho Cho.

The effects were apparent in the first half of 2002, when Korean Air reported net income of 195.4 billion won ($161.9 million), a dramatic reversal from a net loss of 345.9 billion won last year. Operating revenue was up 7% to 2.91 trillion won while operating expenses dropped 1.4% to 2.3 trillion won. Operating profit of 102.4 billion won contrasted with an operating loss of 149.4 billion won in 2001.

The airline said the improvement in operating profit was the result of steady growth in its passenger and cargo business, continuous restructuring in all business sectors, an 18% drop in jet fuel prices and the strengthening of the won against the dollar--KAL's dollar-denominated interest-bearing debt totals $2.12 billion, representing around 56% of its total debt. The carrier also raised domestic fares by 4.5% and transpacific fares by 3.2% starting April 1, which added to revenues. Given "better results than expected" in the first half, Cho expects the company to post a modest profit of $93 million this year, a massive turnaround from the $444 million loss in 2001 and $349 million deficit in 2000.

The turnaround at Korean can be traced to the aftermath of the MD-11F crash at Shanghai on April 15, 1999. The government dubbed the airline a national disgrace after three accidents and six incidents in an eight-month period and demanded a massive management shakeup. At the same time, Delta Air Lines and Air France announced suspensions of their codeshares and said they would nor resume until they were satisfied with KAL's safety performance.

Vowing to change the emphasis from financial growth to safety, Cho, the 53-year-old son of the airline's founder, announced a $200 million investment program that includes retrofitting the fleet with long-neglected safety equipment. …

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