Asiana Crash Sends Passengers to Korean Air in Earnings Blow

Park Sun Young, who’s flown with her family on Asiana Airlines Inc. (020560) between Seoul and New York twice in the past two years, is changing airline allegiances.

Days after an Asiana crash landing in San Francisco resulted in two deaths and scores of injuries, Park said she’ll book future flights on Asiana’s main domestic competitor, Korean Air Lines Co (003490).

“I am concerned about my children going on Asiana,” said Park, 41, a stay-at-home mom in Seoul. “I am switching to Korean Air when we go next month.”

Asiana’s reputation as one of the top carriers for service -- honed over a quarter century since its formation in the run-up to the 1988 Seoul Olympics -- is in jeopardy after the airline’s second crash since 2011. Profit (020560) will be crimped by rising litigation and insurance costs, and Asiana’s training regimen will probably come under scrutiny as U.S. investigators probe why pilots didn’t react to a critical loss of airspeed until moments before the plane crashed into a seawall.

“This is a major blow to Asiana’s status as one of the world’s best airlines,” saidKim Min Ji, an analyst at E*Trade Securities Korea in Seoul. “While the cause of the crash is still unknown, some passengers may decide against flying Asiana. Its earnings are going to be hit as well.”

Photographer: SeongJoon Cho/Bloomberg

Korean Air Lines Co., front, and Asiana Airlines Inc. aircraft stand on the tarmac at Incheon International Airport in Incheon, South Korea. Close

Korean Air Lines Co., front, and Asiana Airlines Inc. aircraft stand on the tarmac at... Read More

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Photographer: SeongJoon Cho/Bloomberg

Korean Air Lines Co., front, and Asiana Airlines Inc. aircraft stand on the tarmac at Incheon International Airport in Incheon, South Korea.

Pilot Interaction

The July 6 crash occurred when a pilot with only 43 hours of experience flying the Boeing Co. 777 model was at the controls during the approach to San Francisco. The amount of training needed to fly for Asiana is less than that required by Korean Air Lines (003490). Asiana hires pilots with 250 hours of flight experience, while Korean Air requires a minimum 1,000 hours.

Asiana (020560) shares dropped 0.8 percent 4,840 in Seoul trading today. The stock has fallen 22 percent this year.

U.S. investigators are working to determine why flight 214 slowed to almost 40 miles (64 kilometers) per hour below its target speed before hitting the seawall short of the runway, an official for the National Transportation Safety Board said yesterday. Also unanswered: why the pilots Asiana didn’t respond until seven seconds before impact, even though the plane was moving so slowly it was on the verge of losing lift. All but two of the 307 people on board survived.

Five Stars

Attention is turning to the less experienced pilot’s decision making and the oversight provided by the more senior aviator in the cockpit at his side.

“No matter how bad a pilot, if they think they are going to come down short of the runway, they would push the power,” said Hideki Kazama, a principal analyst for Japan Aviation Management Research, who has 37 years of flying experience, including 747s for Japan Airlines Co. (9201) “The pilot doesn’t want to die.”

Kazama said it’s too early to assume that the accident was caused by pilot error.

Asked about the company’s reputation during a press briefing yesterday, Asiana Chief Executive Officer Yoon Young Doo said, “we are monitoring the situation.”

Asiana, whose travel code is OZ, adopted “uncompromising safety” as its mission statement, according to the website of Star Alliance, a global grouping of carriers that also includes Singapore Airlines Ltd. (SIA), United Continental Holdings Inc. and Deutsche Lufthansa AG.

Loyal Passengers

Seoul-based Asiana is one of only seven carriers in the world with a five-star rating for services from Skytrax, which also named it airline of the year in 2010. Emirates Airline was last month named the best airline in the world by Skytrax and Asiana fifth-best.

Asiana, with its distinctive red, yellow and blue-painted tails of aircraft -- the three colors used in a traditional Korean costume -- now risks losing other customers.

Yang Kyunghee, 65, said she has a lot of miles accrued from her several flights on Asiana.

“I don’t think I will be this loyal in the future,” she said. “I am now seriously considering stopping my flights with them in the future because of the accident.”

Still, Asiana has die-hard fans like Hong Sung Yoon, 55, who flies the airline to New York because it provides services like a free shuttle to New Jersey, home to a large Korean expatriate community. The shuttle service and in-flight entertainment like magic shows and tarot-card reading are a hit with customers.

Korean Air

“I don’t plan to switch to another airline because of this accident,” said Hong. “For a cheaper price, you get a much better service” than Korean Air Lines.

Asiana was set up in February 1988 and made its first flight in December that year as part of the government’s efforts to grow the country’s tourism and aviation industry.

The company is part of Kumho-Asiana Group, which has businesses ranging from construction to tire making. The conglomerate also owns golf courses and an airport ground-handling unit. Kumho Industrial Co. (002990), the construction arm of the group, owns the biggest stake, 30 percent, of Asiana.

“The airline’s corporate image will likely be severely degraded,” after the accident,Eunkyung Park, an analyst at Samsung Securities Ltd., wrote in July 7 note. The airline’s earnings will be hit, and Park plans to adjust her forecast after more details emerge, according to her note.

Asiana posted a net income of 62.5 billion won ($55 million) last year, from a loss of 29.9 billion won a year earlier. Sales climbed 5 percent to 5.89 trillion won.

Aging Fleet

Korean Air, which was set up in 1969, had a domestic monopoly until Asiana started flights. Asiana started flying domestic routes with a new 737-400 and started overseas services in January 1990 to Tokyo. Its maiden flight to the U.S. was to Los Angeles in November 1991.

Asiana currently flies to 83 cities domestically and overseas with about 80 planes on its fleet. It will receive four more aircraft later this year and plans to add services to Jakarta and Bali in Indonesia later this month.

The carrier in January 2011 ordered six Airbus SAS A380 superjumbo jets. It also ordered 30 A350 planes from Toulouse, France-based planemaker in 2008. That may help ease pressure on an aging fleet.

Asiana had the world’s eighth-oldest fleet, with an average age of 12.6 years, according to a Bloomberg Industries report in January. Air Arabia had the youngest at 3 years, it said.

The accident was Asiana’s worst since 1993, when a Boeing 737 crashed in Mokpo, south of Seoul, killing 66 people, according to the National Archives of Korea.

Asiana’s previous disaster was the crash of its cargo freighter in the sea south of Jeju island in July 2011. It caused 200.4 billion won ($175 million) of damage, the airline said then.

“There’s just too much uncertainties and it could be years before they find out the cause of this crash,” said Cho Byoung Hee, an analyst at Kiwoom Securities Co. in Seoul. “Whichever way you look at it, it doesn’t look good for Asiana.”

To contact the reporter on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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