Samsung-Apple Phone Fight Creating Winner in Korean Air

The introduction of Samsung Electronics Co.’s Galaxy S4 smartphone has one clear winner -- Korean Air Lines Co.

Samsung Electronics may ship about 44 million of the smartphones in the second and third quarters, according to Young Park, an analyst at Woori Investment & Securities Co. in Seoul. A Boeing Co. 747-8 freighter plane carrying nothing else can hold about 1 million phones.

Moving high-value goods such as a smartphone by air quickly to various markets is important for Samsung to capture market share when the product has maximum demand. The introduction will likely reverse a two-year decline in freight sales at the Seoul-based carrier, the world’s second-biggest international cargo airline.

“The Galaxy can provide Korean Air with the relief it needs during these difficult times,” said Joo Hae Mee, an analyst at LIG Investment & Securities Co. with a buy rating on the airline. “While the introduction of one product isn’t enough to make a full recovery, given the dire situation of the cargo industry worldwide, this is positive.”

The global air-freight market shrank 1.5 percent in 2012 for a second consecutive year and airlines were filling less than half of their cargo planes, according to the International Air Transport Association. Hurt by the economic slowdown, cargo carriers such as Cathay Pacific Airways Ltd. have turned to high-value items like diamonds because moving low-technology goods is adding little to profits.

Inventory at Sea

Mobile phones are one of the top three products that are moved by air in South Korea, home to Samsung and LG Electronics Inc. Airlines haul about $5 trillion annually of total cargo, accounting for a third of the global trade in terms of value, according to IATA.

Sending phones by ship on long distances, although cheaper per unit, can be uneconomical because of the high value of inventory in transit at sea. Still, sometimes the sea route is preferred when urgency isn’t at stake.

Samsung, which unveiled the Galaxy S4 in New York yesterday, will first sell the phone initially in three countries by end-April and reach 155 nations by early May, said Chenny Kim, a company spokeswoman. The phones will be made at factories in South Korea, China and Vietnam.

Samsung aims to take market share in the $358 billion market from Apple’s iPhone 5, which was introduced last year. Apple’s sales growth last quarter was the slowest in more than two years.

S4 Impact

Shares of Korean Air, which counts Samsung as its biggest customer, dropped 0.2 percent to 42,150 won in Seoul trading today. Samsung fell 2.6 percent to 1,480,000 won while the benchmark Kospi Index declined 0.8 percent.

Korean Air expects the shipment of Samsung’s new Galaxy phone will help increase cargo demand in South Korea, China and other Asian countries, said Kim Jong Cheol, managing vice president of Korean Air’s cargo sales and marketing division, in an e-mail based interview.

Volumes are expected to start picking up from early next month for the smartphone as well as materials that goes into making it, Kim said.

“The impact of Galaxy S4’s shipment won’t be just short-term and limited to South Korea because it could also prompt competitors likes Apple, LG and Nokia to push for early release of their products,” Kim said. “There’s a high possibility that this could have positive effect on air cargo demand originating from Asia, including China, within the second quarter.”

Cargo Fleet

Korean Air gets 1.6 percent of its revenue from Samsung, according to data compiled by Bloomberg.

Korean Air plans to add one Boeing Co. 777 and 747-8 freighters this year, keeping its fleet unchanged at 27. It currently has 23 747s, two 747-8s and two 777s cargo planes.

The nation’s biggest airline posted a profit of 259.6 billion won last year, helped by higher passenger numbers. This year, the company expects cargo traffic to increase 2.1 percent, while reducing capacity by 1.2 percent. The airline plans to fill 79.1 percent of its cargo planes, according to its Feb. 1 earnings statement.

“Korean Air will benefit most from the rise of Samsung,” said Michael Lee, a Taipei-based analyst with Primasia Securities Co. Ltd. “This is a silver lining for the carrier.”

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