Asiana’s San Francisco Crash Seen Pushing Airline to Loss

Asiana Airlines Inc. (020560) may take a charge of at least 20 billion won ($18 million) from the crash of its plane in San Francisco, and that will push South Korea’s second-largest carrier to a loss this year, five analysts said.

Insurance payment won’t cover the loss of aircraft, litigation and other charges and an erosion in passenger numbers after the crash of the Boeing Co. 777 aircraft, said Cho Byoung Hee of Kiwoom Securities Co. in Seoul. The loss estimate contrasts with a projected 20.8 billion won profit, according to the average of 18 analyst forecasts compiled by Bloomberg.

“A loss is inevitable this year because of the crash,” saidKang Seong Jin, an analyst at Tongyang Securities Inc. in Seoul. “They lost a plane, and then there are compensation costs, which will be determined later.”

The Seoul-based company will also have to brace for lower traffic this year as travelers switch to other airlines on safety concerns, the analysts said. A loss for Asiana contrasts with the optimism expressed by the International Air Transport Association last month, when it predicted global airline earnings will be 20 percent higher this year than forecast earlier, led by carriers in Asia.

Photographer: SeongJoon Cho/Bloomberg

A man takes a photograph of an Asiana Airlines Inc. model aircraft displayed at the company's headquarters in Seoul. Close

A man takes a photograph of an Asiana Airlines Inc. model aircraft displayed at the... Read More

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Photographer: SeongJoon Cho/Bloomberg

A man takes a photograph of an Asiana Airlines Inc. model aircraft displayed at the company's headquarters in Seoul.

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. Earnings 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.

Capacity

“We are concentrating all our efforts on the ongoing investigation,” said Lee Hyo Min, an Asiana spokeswoman. “It’s premature to make any estimates on anything at the moment.”

All but two of the 307 people on board survived the July 6 crash-landing, with at least 26 still hospitalized. It was the first fatal accident in the U.S. of a large jet since 2001.

Capacity at Asiana, with 69 passenger planes in a total fleet of 80, may drop by 1.9 percent this year, said Park Eun Kyung, an analyst at Samsung Securities Co. in Seoul. The loss in seats and traffic may erode sales by 70 billion won and that could have a bigger impact on operating profit, she said.

Asiana is expected to recognize the loss from the aircraft in the third quarter, which will be bigger than her pre-tax profit forecast of 15 billion won.

Photographer: SeongJoon Cho/Bloomberg

The Asiana Airlines Inc. logo is displayed at the company's headquarters in Seoul. Close

The Asiana Airlines Inc. logo is displayed at the company's headquarters in Seoul.

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Photographer: SeongJoon Cho/Bloomberg

The Asiana Airlines Inc. logo is displayed at the company's headquarters in Seoul.

Insurance Premium

“Insurance premiums are likely to increase, especially with the crash taking place soon after the cargo plane crash in 2011,” Park said.

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 of damage, the airline said then. The Boeing 747-400 aircraft was carrying two crew members and 58 tons of cargo to Shanghai from Incheon International Airport.

Park plans to adjust her forecast for earnings after more details on the crash emerge. She estimated in her July 7 note that the airline may post a profit of 11 billion won this year and sales of 6.1 trillion won.

Asiana had a profit of 62.5 billion won in 2012, compared with a loss of 29.9 billion won a year earlier. Sales climbed 5 percent to 5.89 trillion won.

Asiana and its bigger domestic competitor Korean Air Lines Co. are already suffering because of the weakening yen this year, which has reduced the number of Japanese passengers on their flights. Things aren’t looking any better for the second quarter, according to Park Sung Bong, an analyst at Hana Daetoo Securities Co.

Depreciating Yen

“Drop in the number of inbound Japanese passengers may cut yields on Japan routes by 20 percent,” Park said. “Asiana’s second-quarter earnings may be below market consensus.”

Asiana’s Japanese routes bear the highest yields, followed by China and the Commonwealth of Independent States, according to its first-quarter earnings report. Passenger yields, the average price a traveler pays to fly per kilometer, on its Japan routes dropped 16 percent from a year earlier to 17.4 cents in the first quarter, the report said.

The airline 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.

Carriers globally are likely to generate net income of $12.7 billion in 2013, IATA said last month. That compares with forecast of $10.6 billion issued on March 20, and represents a 67 percent gain on last year’s profit of $7.6 billion.

Airlines in all regions should post a profit this year, led by carriers in Asia with projected earnings of $4.6 billion and North America with $4.4 billion, IATA said.

“It was already a very difficult market for Asiana because of the weak demand on its Japan services,” Kang at Tongyang said. “The crash just made it more difficult.”

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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