Korean Air Posts a Loss on U.S. Fine for Prices BA and Other Carriers Tapped in Price Fixing BUSINESS ASIA By Bloomberg

By Seonjin Cha

Korean Air Lines, the largest South Korean airline, said it would pay a record $300 million fine for price fixing, forcing it to post its first loss in two years. The net loss in the second quarter was 214.4 billion won, or $232 million, compared with a profit of 14.9 billion won a year earlier, as the airline booked the fine as a one- time cost, the Seoul-based company said Thursday. Sales rose 8.9 percent to 2.11 trillion won.

Korean Air and British Airways were each fined $300 million by the U.S. Justice Department for fixing prices for passenger and cargo flights.

Strong travel demand spurred by Korean economic growth will mitigate the effect of the fine, investors in the region said.

“The fine wiped out the company first-half earnings,” said Kwak Tai Ho, an analyst at Kyobo Investment Trust Management. “It shouldn’t be repeated and likely won’t after the ruling.”

Shares of the Korean carrier dropped 2.9 percent to 67,000 won at the close of trading in Seoul, compared with a 0.2 percent decline in the benchmark Kospi index. Shares have surged 89 percent so far this year.

“We apologize to our clients and shareholders,” said Ahn Yong Seok, a lawyer for Korean Air, by phone in Seoul on Thursday, speaking of the fine by the United States.

“We’re intensifying internal monitoring and education to prevent a repeat of the wrongdoing,” he said. The lawyer declined to comment on whether Korean Air discussed prices with British Airways, adding their routes are different.

The U.S. agency said Wednesday that Virgin Atlantic Airways and Deutsche Lufthansa, the second-biggest European airline, were cooperating with the Justice Department investigation. Both companies received conditional amnesty from prosecution after coming forward with information.

Korean Air flies to 114 cities in 37 countries, including 11 passenger routes and 10 cargo.

The United States was the biggest passenger market outside of South Korea for the airline last year, accounting for 13 percent of its total passenger revenue while it secured 9 percent of its cargo revenue from the U.S. region, the company said in February.

“The impact of the fine won’t last that long,” said Kim Joo Hyoung, a fund manager at KTB Asset Management in Seoul, including Korean Air shares. “I’m positive about Korean Air’s long-term outlook on strong travel demand.”

Korean Air likely will not lose customers because of the fine, since it mostly dealt with cargo rates, and the airline also has stable relationships with cargo shippers, Kwak, of Kyobo Investment, said.

Cargo traffic increased 14 percent while it packed 75.3 percent of cargo space during the first half, 2 percentage points lower than a year earlier. Cargo revenue rose 3.6 percent, the airline said.

Korean Air is the world’s biggest commercial freight carrier excluding package shipping companies in terms of shipment volume, according to the International Air Transport Association.

International passenger traffic, or the number of paying travelers multiplied by the distance flown, rose 9.8 percent during the first six months of this year.

(c) 2007 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.