Exchange Rates and the Profitability of Korean Airlines In May 2019, South Korea's two major airlines-Korean Airlines and Asiana Airlines Inc.-were hit by foreign exchange losses arising from the weakness of the Korean won against the U.S. dollar. Korean Air announced that it posted 148.20 billion won ($124.49 million) in operating profit from January to March, down 16.2 percent from the same period a year ago. Asiana Airlines announced on the same day that its operating profit in the first quarter had declined 89 percent to 7.20 billion won ($6.05 million) from a year earlier. In February 2020, it happened again. Asiana Airlines announced that for the three months that ended on December 31, 2019, net losses widened to 234.8 billion won ($199 million) from 163.9 billion won a year earlier due to foreign exchange losses. These foreign exchange losses arose from two sources. First, like the oil from which it is derived, in the global marketplace jet fuel is priced in U.S. dollars. Hence, any fall in the price of the won against the U.S. dollar drives up fuel purchasing costs when translated back into won. Second, Korean Airlines and Asiana Airlines have both taken on dollar-denominated debt in order to finance their purchase of jet aircraft from Boeing and Airbus, both of which are also priced in U.S. dollars. They have done this because interest rates on dollar- denominated debt have been significantly lower than interest rates on won-denominated debt. However, borrowing in a foreign currency brings with it an exposure to foreign exchange risk. A fall in the price of the won against the U.S. dollar will drive up the costs of servicing that dollar-denominated debt when translated back into Korean won-and that is exactly what has happened. So how much has the won fallen against the U.S. dollar recently? In mid-February 2018, one U.S. dollar was trading at around 1,065 won. By mid-February 2020, one U.S. dollar bought about 1,200 won. Put differently, the won had depreciated in value against the U.S. dollar by around 12.5 percent. When the dollar cost of jet fuel and debt service, both paid for in dollars, was translated back into won, this implied a 12.5 percent increase in costs for these Korean airlines over this time period and, consequently, a fall in their profitability. Exchange Rates and the Profitability of Korean Airlines In May 2019, South Korea's two major airlines-Korean Airlines and Asiana Airlines Inc.-were hit by foreign exchange losses arising from the weakness of the Korean won against the U.S. dollar. Korean Air announced that it posted 148.20 billion won ($124.49 million) in operating profit from January to March, down 16.2 percent from the same period a year ago. Asiana Airlines announced on the same day that its operating profit in the first quarter had declined 89 percent to 7.20 billion won ($6.05 million) from a year earlier. In February 2020, it happened again. Asiana Airlines announced that for the three months that ended on December 31, 2019, net losses widened to 234.8 billion won ($199 million) from 163.9 billion won a year earlier due to foreign exchange losses. These foreign exchange losses arose from two sources. First, like the oil from which it is derived, in the global marketplace jet fuel is priced in U.S. dollars. Hence, any fall in the price of the won against the U.S. dollar drives up fuel purchasing costs when translated back into won. Second, Korean Airlines and Asiana Airlines have both taken on dollar-denominated debt in order to finance their purchase of jet aircraft from Boeing and Airbus, both of which are also priced in U.S. dollars. They have done this because interest rates on dollar- denominated debt have been significantly lower than interest rates on won-denominated debt. However, borrowing in a foreign currency brings with it an exposure to foreign exchange risk. A fall in the price of the won against the U.S. dollar will drive up the costs of servicing that dollar-denominated debt when translated back into Korean won-and that is exactly what has happened. So how much has the won fallen against the U.S. dollar recently? In mid-February 2018, one U.S. dollar was trading at around 1,065 won. By mid-February 2020, one U.S. dollar bought about 1,200 won. Put differently, the won had depreciated in value against the U.S. dollar by around 12.5 percent. When the dollar cost of jet fuel and debt service, both paid for in dollars, was translated back into won, this implied a 12.5 percent increase in costs for these Korean airlines over this time period and, consequently, a fall in their profitability.

Exchange Rates and the Profitability of Korean Airlines In May 2019, South Korea's two major airlines-Korean Airlines and Asiana Airlines Inc.-were hit by foreign exchange losses arising from the weakness of the Korean won against the U.S. dollar. Korean Air announced that it posted 148.20 billion won ($124.49 million) in operating profit from January to March, down 16.2 percent from the same period a year ago. Asiana Airlines announced on the same day that its operating profit in the first quarter had declined 89 percent to 7.20 billion won ($6.05 million) from a year earlier. In February 2020, it happened again. Asiana Airlines announced that for the three months that ended on December 31, 2019, net losses widened to 234.8 billion won ($199 million) from 163.9 billion won a year earlier due to foreign exchange losses. These foreign exchange losses arose from two sources. First, like the oil from which it is derived, in the global marketplace jet fuel is priced in U.S. dollars. Hence, any fall in the price of the won against the U.S. dollar drives up fuel purchasing costs when translated back into won. Second, Korean Airlines and Asiana Airlines have both taken on dollar-denominated debt in order to finance their purchase of jet aircraft from Boeing and Airbus, both of which are also priced in U.S. dollars. They have done this because interest rates on dollar- denominated debt have been significantly lower than interest rates on won-denominated debt. However, borrowing in a foreign currency brings with it an exposure to foreign exchange risk. A fall in the price of the won against the U.S. dollar will drive up the costs of servicing that dollar-denominated debt when translated back into Korean won-and that is exactly what has happened. So how much has the won fallen against the U.S. dollar recently? In mid-February 2018, one U.S. dollar was trading at around 1,065 won. By mid-February 2020, one U.S. dollar bought about 1,200 won. Put differently, the won had depreciated in value against the U.S. dollar by around 12.5 percent. When the dollar cost of jet fuel and debt service, both paid for in dollars, was translated back into won, this implied a 12.5 percent increase in costs for these Korean airlines over this time period and, consequently, a fall in their profitability. Exchange Rates and the Profitability of Korean Airlines In May 2019, South Korea's two major airlines-Korean Airlines and Asiana Airlines Inc.-were hit by foreign exchange losses arising from the weakness of the Korean won against the U.S. dollar. Korean Air announced that it posted 148.20 billion won ($124.49 million) in operating profit from January to March, down 16.2 percent from the same period a year ago. Asiana Airlines announced on the same day that its operating profit in the first quarter had declined 89 percent to 7.20 billion won ($6.05 million) from a year earlier. In February 2020, it happened again. Asiana Airlines announced that for the three months that ended on December 31, 2019, net losses widened to 234.8 billion won ($199 million) from 163.9 billion won a year earlier due to foreign exchange losses. These foreign exchange losses arose from two sources. First, like the oil from which it is derived, in the global marketplace jet fuel is priced in U.S. dollars. Hence, any fall in the price of the won against the U.S. dollar drives up fuel purchasing costs when translated back into won. Second, Korean Airlines and Asiana Airlines have both taken on dollar-denominated debt in order to finance their purchase of jet aircraft from Boeing and Airbus, both of which are also priced in U.S. dollars. They have done this because interest rates on dollar- denominated debt have been significantly lower than interest rates on won-denominated debt. However, borrowing in a foreign currency brings with it an exposure to foreign exchange risk. A fall in the price of the won against the U.S. dollar will drive up the costs of servicing that dollar-denominated debt when translated back into Korean won-and that is exactly what has happened. So how much has the won fallen against the U.S. dollar recently? In mid-February 2018, one U.S. dollar was trading at around 1,065 won. By mid-February 2020, one U.S. dollar bought about 1,200 won. Put differently, the won had depreciated in value against the U.S. dollar by around 12.5 percent. When the dollar cost of jet fuel and debt service, both paid for in dollars, was translated back into won, this implied a 12.5 percent increase in costs for these Korean airlines over this time period and, consequently, a fall in their profitability.