Korean Air Lines Co., Ltd. (KRX: 003490)

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Recommendation	Entry Price	Target Price	Upside
BUY	KRW 24,700	KRW 30,900	25.1% ▲
Market Cap	FY2026E EBITDA	FY2026E EV/EBITDA	Date
KRW 9.1T	KRW 5,523B	2.94x	12 April 2026

Disclaimer
This report has been prepared solely for academic and educational purposes. It does not constitute investment advice, financial advice, or a recommendation to buy, sell, or hold any security. The analysis is based on publicly available information believed to be reliable, but no representation is made as to its accuracy or completeness. Any opinions, forecasts, or valuation estimates are those of the author as of the date of publication and are subject to change without notice. The author does not hold any position in the securities discussed. This report is prepared in a personal academic capacity and is not associated with, endorsed by, or representative of any investment adviser, financial institution, current employer, or other organisation. Readers should conduct their own independent research and seek professional advice before making any investment decision.

Executive Summary

INVESTMENT VIEW

We initiate coverage of Korean Air Lines Co., Ltd. (003490.KS | “KAL”) with a BUY rating, and a target price of KRW 30,900; implying +25.1% upside from the current entry price of KRW 24,700. Our thesis rests on the three independent legs.

Korean Air (003490.KS | “KAL”) is set to become South Korea’s only full-service network carrier following the legal absorption of Asiana. This does not eliminate competition from foreign FSCs, LCCs or Gulf/Chinese/Japanese carriers, but it gives KAL a structurally advantaged position in Korea-origin long-haul traffic, particularly across the transpacific corridor. The stock trades at c.2.94x FY2026E EV/EBITDA, below the selected FSC peer median of c.4.05x, despite the completion of the Asiana acquisition, the Delta JV, and KAL’s cargo exposure to Korea-origin high-value exports.

In March 2026, escalation around the Strait of Hormuz triggered a sharp fuel-price shock for airlines, with Brent rising to c.US$119.5/bbl by mid-April and international aviation fuel prices reaching c.US$197.8/bbl. The market reacted by de-rating airline equities, but we view this as a cyclical compression event rather than structural impairment to KAL’s post-merger position.

Aviation demand is cyclical, but long-haul travel and high-value cargo demand are unlikely to be structurally impaired by a temporary fuel-price shock.

Structural Domestic FSC Consolidation. The government-led merger of Asiana has been cleared after five long years of regulatory debates; with 14 regulatory jurisdictions. Putting aside the give and takes of this merger, soon, Korean Air will be the only available Full-Service Carrier (FSC) in South Korea. The resulting slot portfolio at Incheon Airport (ICN) and the KAL/Delta transpacific JV covering 290+ destinations across Americas are not replicable. The market continues to price KAL as if the competition remains.

Sector Overkill. Geopolitical issues and the uncertainty of Iran conflict fears did hit overall aviation industry, which is inevitable. The key question is whether the fuel shock structurally impairs demand. We do not think it does. Importantly, the same shock is likely to widen the gap between scaled FSCs and smaller LCCs. Korean Air is not immune to fuel and FX pressure, but its larger balance sheet, foreign-currency revenue base, fuel surcharge pass-through mechanism and pre-existing hedge discipline make the shock more absorbable than for smaller, price-sensitive carriers. In that sense, the Iran conflict may compress near-term earnings, but could also accelerate relative competitive strengthening versus LCCs. KAL trades at 2.94x FY2026E EV/EBITDA, below the selected FSC peer median of 4.05x. We believe conflict-related fuel fears have erased the market’s willingness to price in merger synergies, despite KAL’s structurally stronger position in the Korea-North America corridor.

Cargo Supercycle and Investment on Defence Industry. Korean Air sits at the physical origin point of global AI memory supply chain – South Korea. Samsung and SK Hynix control c.79% of HBM supply from Korean fabs and plan to expand capacity in Pyeongtaek (P5 Fab2, Samsung) and Cheongju (M15X, SK Hynix). These products are time-sensitive and often suited to air cargo delivery. Their material HBM-related capacity increase will be followed by delivery to global destination, and KAL Cargo’s 23-freighter fleet with dedicated Incheon hub positioning provides structural cargo optionality linked to AI infrastructure build-out, rather than a purely cyclical airline cargo thesis. KAL also is investing in Aerospace Defence segment as a future cash cow, with partnership in different companies to develop their portfolio.

The key insight is the stacking of two independent compression events: post-pandemic yield normalisation and the Iran-driven sector selloff; both of which, are currently baked in the price. The re-rating does not require heroic execution; cleaner integration evidence, fuel stabilisation or resilient cargo/passenger yields could be sufficient catalysts. The first clean integration read for 1Q2026 is the near-term catalyst.

Industry Analysis

Industry Overview

By nature, airlines are a high-fixed-cost, network-driven transport business where revenue is sold by seat, tonne, route, cabin, timing and loyalty relationship. The core product is perishable; once an aircraft departs, unsold seats and belly cargo capacity cannot be restored. This makes load factor, yield, fleet utilisation and cost per available seat kilometre (CASK) the central economics of the sector.

At a global level, demand has normalised after the post-pandemic reopening surge; but remains structurally supported by the travel and premium leisure demand, corporate travel rebuilding and demand for air cargo. IATA expected industry revenue of c.$1tn in 2025 and c.$1.05t in 2026, with 2026 passenger numbers of c.5.2b and a still-thin industry net margin of c.3.9%. The key investment point is that the sector can produce absolute profit, while still earning narrow margins and facing volatile input costs.1

The table below categorises the aviation industry:

Category	Business Model	Economics	Examples
Full-Service Carriers (FSC)	Hub-and-spoke networks Multi-class cabin Long-haul connectivity Alliances and corporate contracts	Higher revenue complexity Stronger premium and loyalty economics Higher labour and service cost	Korean Air, Delta, United, Lufthansa, Air France-KLM, Singapore Airlines
Low-Cost Carriers (LCC)	Point-to-point High-density aircraft Single/few cabin structures High utilisation Unbundled fares	Lower unit cost More exposed to price-sensitive traffic Strong short-haul economics	Ryanair, Southwest, IndiGo, easyJet, AirAsia
Cargo Specialists & Hybrid Cargo	Freighter and belly cargo capacity Express/logistics exposure Trade-lane focus	Cyclical cargo yields Strong during supply-chain disruption Belly cargo tied to passenger capacity	Korean Air Cargo, Cathay Cargo, Lufthansa Cargo, FedEx/UPS
(+) Ultra low-cost carriers*	Aggressive ancillary-led Unbundling and very low base fares	Lowest cost focus Weaker service differentiation Demand stimulation strategy	Wizz Air, Frontier, Spirit
(+) Gulf/Super-connectors*	Sixth-freedom long-haul hubs connecting regions through a geographically advantaged hub	Network scale, premium service and transfer-flow economics; often state-linked	Emirates, Qatar Airways, Etihad

Not a typical categorisation

Competitive Landscape

Public equity value is concentrated in a small set of US, European and Asian carriers. Market capitalisation tends to reward carriers with durable domestic profit pools, strong loyalty economics, disciplined capacity and cleaner balance sheets. US carriers dominate by equity value; while several of the highest-service global brands are typically in Asia, privately held or state-owned, which do not appear in public market rankings.

Selected Asian FSC peers and global network carrier references. Asian FSCs are the core reference group, Delta/IAG are included as global network carrier context.

Airline / group	Core market	Mkt cap (US$bn)	Skytrax 20252	Alliance	Positioning
Delta Air Lines	US	46	22	SkyTeam	Premium-leaning US network carrier; loyalty and corporate revenue
United Airlines	US	31	51	Star Alliance	Large global network; Pacific and Atlantic exposure
Ryanair	Europe	30	61	ㅤ	Europe scale LCC/ULCC platform
IAG	UK/Spain	23	BA 13 / Iberia 53	oneWorld	Multi-brand network group; North Atlantic strength
Southwest	US	19	76	ㅤ	US domestic low-cost, point-to-point carrier
IndiGo	India	19	39	ㅤ	India domestic scale winner; cost-led narrow-body model
Singapore Airlines	Singapore	16	2	Star Alliance	Global premium benchmark; Changi hub
China Southern	China	15	33	ㅤ	Large China domestic/international carrier
Turkish Airlines	Turkey	9	6	Star Alliance	Istanbul super-connector; wide country reach
Cathay Pacific	Hong Kong	9	3	oneWorld	Premium Hong Kong hub carrier; Greater China and Asia-Pacific gateway
Japan Airlines	Japan	7	9	oneWorld	Premium Japanese FSC; disciplined network, service quality and domestic strength
All Nippon Airways	Japan	7	5	Star Alliance	Premium Japanese FSC; Star Alliance hub carrier with strong domestic and trans-Pacific exposure
Emirates	Dubai	Unlisted	4	ㅤ	Global long-haul super-connector; Dubai hub, premium widebody scale
Qatar Airways	Qatar	Unlisted	1	ㅤ	Premium Gulf super-connector; Doha hub, strong Europe-Asia-Africa network
Etihad	Abu Dhabi	Unlisted	26	ㅤ	Abu Dhabi-based premium network carrier; smaller Gulf hub with selective long-haul reach
Korean Air	Korea	6	7	SkyTeam	Premium Northeast Asian FSC; cargo heritage; post-Asiana scale

Alliance structure matters – the extensiveness of network utility, without requiring full ownership of every route. SkyTeam, Star Alliance and oneWorld allow code sharing, loyalty reciprocity, lounge access and coordinated customer proposition. SkyTeam, where Korean Air belongs to, is particularly relevant to Delta (US bound), Air France-KLM (Europe), supporting long-haul feed and corporate relevance.

Industry specifics and brand positioning

Airline brand positioning is unusually tied to operational delivery. Unlike many consumer brands, the customer experience is directly affected by multiple service factors: punctuality, aircraft type, airport infrastructure, lounge quality, cabin density, service consistency, safety perception, luggage performance and disruption handling. These link back to the customer loyalty with mileage accumulation, and brand equity is therefore a revenue driver and an operating execution scorecard.

Premium FSCs, such as Singapore Airlines, Qatar Airways, Emirates, ANA, Cathay Pacific and Korean Air, compete on long-haul service quality, premium cabins, hub convenience and international reputation. The 2025 Skytrax ranking places Korean Air at 7th globally, above Air France and Japan Airlines; supporting a premium brand narrative, rather than a pure commodity airline narrative.

US Network carriers monetise large domestic networks, co-branded credit cards, loyalty schemes and corporate contract. European network groups are more exposed to slot-constrained hubs, labour complexity, environmental regulation and short-haul competition from LCCs. Middle Eastern super-connectors compete with scale, hub geography and premium service; particularly on long-haul traffic, connecting the East and the West.

KAL’s differentiated positioning is a combination of: (i) flag-carrier trust and premium Asian service quality; (ii) Incheon as a long-haul connecting hub towards US crossing the Pacific; (iii) cargo heritage and operational know-how; (iv) SkyTeam connectivity; and (v) greater domestic & international scale after Asiana merger. The merger created scale benefits, but also integration risk in systems, labour, fleet, route rationalisation and loyalty programme harmonisation.

Framework Analysis

Porter’s Five Forces as below:

Force	Assessment	Investment implication
Rivalry	High. Capacity is visible, products are partly commoditised, and competitors can stimulate demand through fares. Rivalry is most intense on short-haul and overlapping trunk routes.	Returns require cost advantage, premium revenue, network control or slot/hub scarcity.
New entrants	Medium to low for FSCs; higher for narrow-body short-haul LCCs. Aircraft can be leased, but slots, traffic rights, loyalty scale and working capital create barriers.	Korean Air’s barriers are stronger on long-haul, cargo and Incheon-linked flows than on short-haul leisure routes.
Suppliers	High. Aircraft/engine supply is concentrated, airport slots are scarce, labour is often unionised and fuel is externally priced.	Supply constraints can support yields, but also raise capex, maintenance and delay costs.
Customers	Medium to high. Leisure customers are price-sensitive; corporate and premium customers demand reliability and network breadth.	Loyalty, schedule utility and premium service reduce buyer power.
Substitutes	Medium. Rail substitutes short haul; video conferencing substitutes some business travel. Long-haul has limited substitutes.	Long-haul and cargo flows are structurally less substitutable than short-haul domestic demand.

Hamilton Helmer’s 7 Powers as below:

7 Powers lens	Airlines sector view	Korean Air relevance
Scale economies	Present in purchasing, maintenance, scheduling, distribution, loyalty and hub density, but complexity can create diseconomies.	Asiana integration should improve domestic scale and network density, subject to execution.
Network economies	Strong where alliance, hub connectivity and loyalty create route utility.	SkyTeam plus Incheon hub strengthens Korea-origin and transfer value.
Counter-positioning	LCCs strip service and unbundle fares; FSCs cannot fully match without damaging brand and labour model.	Jin Air can be used as group-level counter-positioning if portfolio architecture is disciplined.
Switching costs	Moderate. Loyalty miles, corporate contracts and status benefits create stickiness; leisure switching cost is low.	SKYPASS economics are important, especially post-Asiana loyalty integration.
Branding	Strong for premium long-haul carriers where trust, service and safety matter.	Skytrax top 10 status supports premium positioning.
Cornered resource	Slots, traffic rights, airport infrastructure and scarce skilled labour can be cornered resources.	Seoul Incheon hub scale and route rights are strategic assets; remedies limit some monopoly rents.
Process power	Operational excellence in safety, punctuality, revenue management and disruption recovery compounds over time.	Critical for preserving premium image during merger integration.

Most investable airline theses usually rely on a combination of network economies, scale economies, branding, switching costs and cornered resources. A pure air travel demand growth thesis is insufficient; growth can be competed away through capacity additions, fuel volatility or labour cost inflation.

Industry Revenue and Expense Analysis

Revenue Model: Airline revenue is typically split across passenger ticket revenue, premium cabin and corporate revenue, ancillary revenue, cargo revenue and other revenue as handling, tour packages, loyalty partner sales or interline settlements. Revenue quality depends on whether growth is driven by load factor and mix, rather than pure capacity. IATA expects passenger traffic growth to decelerate from the post-reopening surge, while yields remain under pressure as capacity normalises. The industry therefore needs disciplined capacity and premium, ancillary and cargo mix to defend margins.

Expense Model: Fuel is typically the largest and most volatile cost item.

Cost item	Typical characteristics	Analytical focus
Fuel	Largest and most volatile cost line; driven by crude, crack spreads, hedging, FX and fleet efficiency	Fuel cost per ASK, hedge coverage, pass-through ability, surcharge mechanism
Labour	Pilots, cabin crew, maintenance and ground staff; often unionised and scarce	Wage inflation, productivity, industrial relations, post-merger harmonisation
Aircraft ownership	Depreciation, leases, financing and capex	Fleet age, delivery schedule, lease mix, interest rates, residual value risk
Maintenance	Engine shop visits, heavy checks, parts inflation and supply chain bottlenecks	Engine exposure, aircraft age, MRO capability, OEM compensation
Airport / navigation / handling	Landing fees, passenger charges, ground handling, overflight and ATC costs	Hub cost inflation, slot scarcity, airport bargaining power
Distribution / loyalty	GDS, travel agents, loyalty programme costs and partner economics	Direct booking mix, loyalty liability, credit-card monetisation
Disruption / compensation	Weather, ATC, geopolitical rerouting, compensation and irregular operations	Operational resilience and network redundancy

The tension is clear: airlines have rebounded equity performance but remain exposed to jet fuel; with the US Gulf Coast jet fuel around USD 4.11/gal and up more than 100% YTD at current. Sector is trading generally at c.8.2x LTM P/E and c.5.6x EV/EBITDA, below the broader world market; reflecting cyclical risk, fuel volatility and structurally thin margin.

For Korean Air, the revenue and cost analysis should focus on five model drivers: (i) international passenger yield by region, especially Americas, Europe, Japan/China and Southeast Asia; (ii) premium cabin recovery and transfer traffic via Incheon; (iii) cargo yield normalisation and retained cargo capacity after Asiana remedies; (iv) fuel and FX sensitivity, given USD-linked fuel and aircraft costs; and (v) merger synergies versus integration costs. This fuel and FX sensitivity should be analysed on a relative basis, not only an absolute basis Korea is a major Northeast Asian aviation market with established fuel-procurement, airport and surcharge infrastructure; KAL has historically operated with substantial USD-linked exposure across fuel, aircraft, leases and international revenue. That does not remove the cost shock, but it means KAL enters the cycle with a more institutionalised fuel, FX and surcharge management framework than smaller domestic LCCs. When fuel prices and USD funding costs rise together, scale becomes a competitive variable, not merely a cost burden.

Business Strategy

Company & Ownership Overview – Korean Air Lines Co., Ltd.

Korean Air Lines (KAL), is the privately-owned flag carrier of Republic of Korea, incorporated in 1962 as government subsidiary and privatised (sold to Hanjin) in 1969; currently the largest and Skytrax 5-star airline company. Currently KAL engages in the business of domestic and international airline services, manufacturing aircraft parts and maintenance of aircraft; the reporting segments include Air Transport (Passenger and Cargo), Aerospace, Hotels and others.

Current ownership includes Hanjin KAL Co., Ltd (26.95%) and National Pension Services (9.01%). This company has a foreign ownership limit (FOL) due to local regulations to protect foreign ownership, and the limit is set at 49.99% of issued shares.

Business Segments

Segment	% Revenue	Description
Air Transport	~90%	Passenger (international & domestic) + cargo. Trans-Pacific accounts for ~30% of revenue. Dedicated freighter fleet of 23 aircraft. Long-haul slot portfolio at ICN is not replicable.- International passenger accounts for 62% of air transport revenue, followed by air cargo (24.5%), Others (9.8%) and domestic transport (3.4%)- International passenger: 56% of tickets are sold from Korea (followed by 24% from Americas); the route composition is 34% towards Americas, 23% towards SEA bound and 13% towards Europe bound.
Aerospace / MRO	~7%	Aircraft maintenance, repair & overhaul. Boeing 787, 737 MAX, 767, 777 component manufacturing. Revenue is structurally independent of the passenger demand cycle.
Hotel & Other	~3%	Hotel ownership and airport support services. Not a driver of the investment case.

Pricing Strategy

KAL operates a full-service premium pricing model, anchored on long-haul international routes; calibrated against the Gulf carriers on one-stop Europe flows and defended on the Trans-pacific route by the Delta JV.

Passenger Transport. Core pricing architecture for the passenger transport is 3-tiered: First Class (limited on selected routes), Prestige Class (business class equivalent) at the top, Economy Class at the yield floor, with potential introduction of fourth cabin entering the stack (Premium Class). KAL began retrofitting 11 B777-300ERs in September 2025 to introduce a new Premium class, with 40 premium economy seats replacing the jet’s first class section; reducing business class to 40 seats, targeting price-sensitive travellers who still seek for comfort. The strategic logic is sound; higher yield per sqft than economy, while expanding the addressable market on medium-haul Asian routes. This is to counter newly introduced Air Premia’s hybrid positioning, and blunts LCC upsell encroachment on the Japan and SEA corridors.

Cargo. KAL operates cargo fleet (23-freighter fleets) and belly-cargo. KAL runs a yield-management approach, tied to freighter utilisation and belly-hold capacities on widebodies. Cargo revenue represented approximately 24% of FY2025 revenue; structurally larger than at most peer carriers, with a dedicated freighter fleet operating alongside belly-hold capacity. The dual-channel structure gives meaningful pricing flexibility: belly-cargo absorbs incremental demand at near-zero marginal cost, while the freighter fleet captures premium express freight at market rates.

Market Position. This is being permanently restructured by the event – merger of Asiana Airlines. The combined entity will dominantly control approximately 49% of South Korea’s international seat capacity; positioning the group in the top 10 global airlines by capacity. Domestic positioning is even stronger, including KAL, Asiana, and their LCC brands (which will be further consolidated to Jin Air), holds 64% of domestic capacity in the nation, with actual passenger share of 63% The route between Seoul Gimpo and Jeju Island is officially the busiest airline route in the world with 14.4mn seats scheduled3, and whilst there are multiple providers for this route – KAL including its subsidiaries dominate this market itself. On a consolidated international basis, KAL Group commands 45% of total international capacity out of South Korea for the FY2025; with Jeju Air, a distant second at 8%. That gap is structural, not cyclical. The pricing implication is direct; although there are set limits by Fair Trade Commission (FTC), the fare-setting power on Korea-origin routs, particularly on thin international routes where Asiana previously provided only alternative.4

Incheon Hub is the central pillar of market positioning. KAL’s slot concentration at ICN, combined with recent migration of Asiana’s T1 footprint to T2, created a one-hub operating model that competitors cannot replicate from within Korea. Gulf carriers – Emirates, Qatar, Etihad can compete on one-stop connectivity to Europe; but they cannot match KAL’s POS advantage or the KAL/Delta JV’s corporate contract penetration on transpacific routes.

Competitor Analysis

Domestic FSC: Asiana Airlines (OZ) – being absorbed. The primary domestic FSC competitor is in the midst of disappearing; KAL is planned to absorb OZ on 17 December 2026, ending nearly six decades of competition. Asiana brand will be retired once the merger becomes legally effective; integration risks remain material throughout the whole year. Nonetheless, the strategic endpoint is clear.

Domestic LCCs: Jeju Air (7C), Trinity Airways (previously T’way Air, TW), Air Premia (YP). LCCs, including the LCCs included in KAL Group, now operate roughly 45% of total seat capacity across domestic and international, roughly 25%p above since 2015; eight local LCCs operating currently. Jeju Air is the largest independent LCC, holding 10.4% of systemwide seats in South Korea, and around 15% of Korea-Japan routes. Trinity Airways received an inadvertent boost from merger remedies; KAL agreed to support TW’s entry onto four European routes (ICN – CDG, FCO, BCN, FRA) and leasing five A330s; which helped TW to grow its international ASKs by nearly 32% yoy; TW is now a credible mid-haul competitor, although questions arise whether it is profitable for TW. YP currently occupies the hybrid ULCC and Premium Economy niche on transpacific routes, taking slots for ICN – LAX, EWR, SFO, HNL and IAD); direct competitive response to KAL’s pricing on the US West Coast.

LCC sub-market is consolidating under KAL’s umbrella. KAL now holds 3 LCCs (Jin Air, Air Busan and Air Seoul) which carried 6.25mn international passengers in 2025, vs. Jeju Air’s 3.9mn; and expected to become South Korea’s second largest international airline operating with 21% M/S once the merger consolidation is complete. Jin Air, is a captive tool for yield segmentation, not an independent competitive threat.

International Premium Long-haul: Cathay Pacific (CX), Singapore Airlines (SQ), Japan Airlines (JL), All Nippon Airways (NH). Cathay Pacific and Singapore Airlines compete primarily on connecting premium traffic through Hong Kong and Singapore respectively. Both are structurally disadvantaged on Korea-origin Origin & Destination traffic, where KAL holds the home-market flag carrier advantage; the advantages they take are Oceania bound, which is not a huge market for KAL’s target. JAL and ANA compete on Japan routes, where LCC penetration has already compressed yields. On the transpacific, KAL’s competitive edge rests on the Delta JV which covers more than 15 NORAM gateways and captures premium corporate traffic through codeshare and revenue pooling.

Critically, ICN has a more underappreciated sixth-freedom hub potential than regional peers typically receive credit for. Chinese domestic aviation is fragmented across Beijing (Daxing and Shoudu), Shanghai (Hongqiao and Pudong), Guangzhou and Chengdu; with no single hub offering the connection density that Incheon does, plus there are Air China, China Eastern, China Southern, Hainan Air competing. Japan’s geography concentrates traffic at Tokyo Narita and Haneda, but slot congestion and bilateral restrictions cap growth (especially limited capacity of Haneda Airport). Incheon, by contrast, offers a single, uncongested hub with a 45-minute connection time, 24-hour operations, and a spoke network that feeds Northeast Asian regional traffic onto KAL’s long-haul trunks. The result is Japanese traveller connects from a small Japanese city, connecting Seoul to New York; or a Chinese traveller, routing through Incheon to LA, is a realistic and growing traffic segment, on top of the strong connectivity within Asia of SkyTeam. Post-merger, KAL’s combined capacity at ICN deepens this sixth-freedom proposition further, as consolidated frequency on regional feeders makes connection itineraries more competitive against both HKG and SIN on Asia-NORAM flows.

Chinese carriers: Air China (CA), China Eastern (MU), China Southern (CZ). The three Chinese majors are structurally low-cost competitors on KAL’s Europe and NORAM long-haul routes. Government backing and domestic cross-subsidisation allow them to price international fares 20-30% below KAL on comparable O&D pairs, using Beijing and Shanghai as one-stop hubs to offset the connectivity disadvantage against ICN direct services. The Russian airspace asymmetry compounds this. Chinese carriers retain full Russian overflight rights, cutting 2-3 hours off Asia-Europe sectors versus KAL’s mandatory detour routing. That time advantage translates directly into lower fuel burn and CASK, a structural cost gap KAL cannot close until overflight rights are restored.

On cargo, the Chinese majors leverage their domestic manufacturing base to move electronics, batteries, and e-commerce volumes at low yields and high density, undercutting KAL at the yield floor and commoditising lanes where KAL competes on premium positioning. Weak Chinese domestic consumption has pushed excess international capacity into the market, creating near-dumping dynamics on select transpacific and Asia-Europe freight corridors.

The constraints are real but not permanent. Bilateral slot limits under the Korea-China aviation agreement, a meaningful brand trust gap in corporate travel, and KAL’s Delta JV corporate contract penetration limit near-term share loss. The demand recovery angle also cuts both ways: a normalisation of China outbound travel is a volume tailwind for KAL, which can absorb connecting Chinese traffic through Incheon. Net, the Chinese carrier threat is most acute on price-sensitive leisure and thin cargo lanes. It is least acute where KAL is strongest: premium transpacific corporates and high-yield semiconductor freight.

Gulf Carriers: Emirates (EK), Qatar Airways (QR), Etihad (EY). The Gulf three compete on one-stop connectivity between Korea and Europe, undercutting Korean Air on price via efficient hub models. Gulf and Asia cargo carriers increased freighter and belly capacity in 2024-2025, shifting share on key electronics and e-commerce lanes. This is the most structurally persistent competitive threat: Gulf carriers have lower unit costs, newer fleets, and deep sixth-freedom traffic. Russian airspace closure exacerbates the cost gap: Korean Air’s Europe services require longer detour sectors, raising CASM relative to pre-2022 baselines.

Cargo-specific: FedEx, UPS, Air Incheon. Korean Air competes directly with integrators on express freight lanes, and now also against Air Incheon, which acquired Asiana Cargo as a merger concession. Divestment of Asiana Cargo was among the concessions Korean Air made to secure regulatory clearance. This is a structural weakening: the combined post-merger entity loses Asiana’s freighter capacity to an independent competitor. Near-term cargo yield normalisation is partly a function of this divestiture shifting capacity to a third party rather than pure market weakness.

SWOT Analysis

Strength	- Structural domestic monopoly. Post-merger, KAL controls 64% of domestic passenger capacity and 46% of international seat supply from South Korea. No plausible near-term domestic challenger. - Incheon hub concentration. ICN is the operational backbone of Korea’s transit flow. KAL’s slot dominance with OZ migration to T2, locks in hub infrastructure advantage for the decade. - Transpacific JV with Delta. Delta partnership covers over 15 NORAM gateways, generating premium corporate revenue through codeshare and widening the network without direct penetrations, independent competitors cannot replicate. - Cargo revenue durability. Cargo at 24% of revenue provides meaningful counter-cyclicality against passenger yield compression. Dedicated freighter fleet combined with belly-cargo insulates the business. - Fleet renewal pipeline. KAL committed to over 150+ aircrafts in 2025, including 103-aircraft Boeing order for newly introduced fleets (777-9, 787-10, 737-10 and 777-8F); anchoring the fleet plan through 2039, delivering 20-25% better fuel efficiency than retiring widebodies. - SkyTeam membership and brand quality. KAL’s brand value reached $2.6b in 2025; up 33% yoy, reflecting post-merger consolidation and rebranding completed designed by Lippincott.
Weaknesses	- Merger integration execution risk. KAL’s salary standard is higher by ~32% and the KAL group committed to match the KAL standard for OZ. A cost uplift that will weigh on post-merger unit costs before synergies fully materialise. Labour friction with pilots’ unions over seniority is unresolved. - Russian airspace and detour costs. Closure of Russian airspace forces longer Europe-sector routing, raising CASM directly and reducing competitive parity against Gulf carriers on one-stop Europe flows. - Fuel cost sensitivity via Middle East escalation. Jet fuel is the single largest OPEX item (30-35%) and ongoing ME conflict associated with Hormuz disruption risk which KAL cannot fully hedge. - Domestic fare regulation risk. Korea’s Fair Trade Commission has intervened to cap airfare increases on domestic routes, constraining KAL’s ability to pass through cost inflation to passengers on the Korea domestic market. - Asiana Cargo divestiture. The loss of Asiana Cargo to Air Incheon as a regulatory concession permanently reduces the group’s freighter capacity and creates a new domestic cargo competitor. - High leverage and capex intensity. The Asiana acquisition was financed at KRW 1.8tr, triggering a multi-year capital deployment cycle covering aircraft, cabins, infrastructure, and digital platforms, with the 103-aircraft Boeing commitment alone valued at approximately $50b. Balance sheet flexibility is constrained through the mid-2030s. - FY2025 profit compression. Net profit fell 21% year-on-year to KRW 965 billion in FY2025, reflecting integration costs, FX headwinds, and softer cargo yields. The margin trajectory is temporarily obscured by one-off merger costs.
Opportunities	- China traffic recovery. China remains the second-largest international market out of South Korea but is still below 2019 seat levels, with sluggish outbound demand and geopolitical friction suppressing yields. With the recent visa-exempt for Chinese nationals, potential normalisation for Chinese traffics with high-incremental-margin opportunity given existing route infrastructure. - Cargo yield tailwinds from geopolitical disruption. The Hormuz disruption and Strait-related freight rerouting supports modal shift from sea to air on high-value cargo lanes. This disproportionately benefits Korean Air given its freighter-heavy cargo network serving Korean electronics exporters (Samsung, SK Hynix). - Premium cabin upsell expansion. The new premium economy product, if rolled out to long-haul routes following the medium-haul pilot, meaningfully expands yield per available seat mile with limited incremental capex. Post-merger cabin retrofits on Asiana aircraft present a second wave opportunity. - Starlink connectivity differentiation. Korean Air selected Starlink for fleetwide in-flight Wi-Fi installation across Korean Air, Asiana, and LCC subsidiaries, offering peak speeds up to 500 Mbps. This is a product differentiator on long-haul routes, particularly for corporate travellers. - SKYPASS/SkyTeam loyalty consolidation. Merging SKYPASS and Asiana Club creates a larger, higher-engagement loyalty base. Miles-monetisation and co-branded credit card revenue are underpenetrated relative to peer carriers. - LCC restructuring pressure. Sustained fuel and FX pressure could force weaker LCCs to cut capacity, rationalise routes or pursue consolidation. This would improve industry discipline and strengthen KAL’s relative position, especially given its ability to segment the market through Jin Air while preserving Korean Air’s premium FSC brand.
Threats	- Gulf carrier encroachment on Europe flows. Emirates, Qatar, and Etihad continue to grow one-stop capacity between Korea and Europe at structurally lower unit costs. Korean Air cannot close this cost gap without Russian airspace access. - LCC yield pressure on short haul. LCC short-haul international seats take 34% of Korea’s international capacity in 2025, compressing KAL’s yields on short-haul flights (Japan/China/SEA bound) to compete. LCC expansion has structural momentum. - FX and fuel volatility. Korean Air’s KRW cost base, USD-linked fuel and aircraft costs create material FX and fuel exposure. Jet fuel is the largest operating cost line and cannot be fully hedged. However, the competitive impact is partly offset by KAL’s larger scale, broader foreign-currency revenue, better funding access and more established surcharge/hedging framework versus smaller LCCs: KAL has larger scale, broader foreign-currency revenue, better funding access and a more established surcharge/hedging framework. The risk is therefore absolute earnings pressure, not necessarily competitive deterioration. - Regulatory and antitrust scrutiny post-monopoly. Critics have raised concerns about reduced competition and potential fare increases following the merger. With 64% domestic and 46% international market share, Korean Air is an obvious target for price regulation or slot divestiture demands if consumer complaints escalate. - Tariff-driven cargo demand softness. Q4 2025 saw cargo revenue slide as tariff-related uncertainty dampened cross-border e-commerce flows. US trade policy shifts are a direct cargo yield risk given Korean Air’s dependence on intra-Asia and transpacific express freight.

Investment Thesis

Thesis 1. Structural Monopoly Built by Merger – The Only Full-Service Flag Carrier in Korea

Only Korean FSC with platform-level capability across long-haul international, short-haul regional, and dedicated air cargo

Five-year regulatory battle across 14 jurisdictions cleared — consolidation is done, integration is underway

New-generation fleet commitment of 136 aircraft, comprising 103 Boeing aircraft and 33 A350-family aircraft, locks in structural cost advantage through the 2030s

System lock-in slot portfolio, loyalty programme, and corporate contract base are not replicable without matching Korean Air’s scale and network

KAL will be the only FSC in Korean market, with no domestic FSC competitor remaining after the merger with Asiana. The most credible threats are segment specific – LCCs on short-haul domestics and internationals, foreign carriers on select international routes – not full-spectrum displacement. Almost 1/3 of revenue comes from America-bound route (assuming KAL and OZ combined), with over half of the passenger region based in Korea. The balance of revenue is quite diversified across long-haul and short-haul flights; 49% of revenue are generated from long-haul flights towards US-bound, Europe-bound and Oceania bound; whilst medium to short-haul flights takes another 47% of total revenue. By sales, 56% of sales are generated locally from Korea, which is expected given the Incheon hub of Korean-locals. The merger of KAL and OZ now controls the majority of long-haul capacity at Incheon, the primary gateway between Northeast Asia, North America, Europe and Middle East. The position is not replicable, without first matching KAL’s regulatory clearances, slot portfolio and order book.

Every carrier has their own strategic priority. Emirates, Qatar, Etihad maximises their geographical position in the Middle Eastern hub, connecting the Asia and Europe; Singapore Airlines and Cathay Pacific have been known for their strength in connection with 6th freedom – connecting different countries to Southeast Asia and China respectively. The Northeast Asian carriers, including KAL and OZ, and their competitors in Japan (JAL and ANA) has a higher focus on connecting China, Middle East region to the US, using the geographical benefits with their outstanding services. Among the four – KAL and OZ became one, and now it is the battle among three.

KAL’s positioning and scale has a lot of benefits – including the negotiation power with suppliers, enabling the scale of economy. When the legal merger is completed, KAL will hold 235 fleets by end-2026; with current fleet renewal plan, anchored by 136 confirmed NG aircraft orders, of 103 Boeing jets till 2039 ($36.2B)5 and 33 Airbus aircraft ordered in 20246, which will be introduced starting 2027. By the number of aircraft, KAL post-merger will be world’s 20th largest airline and will be a ‘mega carrier’ of Northeast Asia. The new aircraft models are expected to deliver 20-30% better fuel efficiency versus retiring widebodies, supporting long-term operating cost improvement. This should be read as a long-term replacement and efficiency programme, not immediate capacity addition. Any reference to the existing fleet base should be shown separately from the orderbook.

Signficant part of merger has been completed. A few matters – including the relationship with KAL and OZ’s labour union given the rigid labour law situation in Korea – are still on the way, but the loyalty programme has been resolved, enabling the Asiana loyalty programme users to be migrated to KAL’s Skypass, playing an integral part of SkyTeam’s Asian network. The depth of flight alliance, network, corporate relationship they hold for a long-time with local companies cannot be replaced within one day. These will be the home-grown assets that have been part of the network – which Asiana held too – and will make the firm competitive position for KAL.

[Plan for High-Efficiency Fleet] As of 2025E, 55 out of KAL’s current fleet (165) are high-efficiency fleet. 20 777-9s, 25 787-10s, 50 737-10s and eight 777-8Fs to be introduced.7

ㅤ	A350-900	A350-1000	A350F (Freighter)	B787-9	B787-10	B777-9	B737-8	B737-10	A321Neo	Total
Carbon emissions Efficiency	-25%	-25%	-20%	-25%	-20%	-20%	-20%	-20%	-25%	ㅤ
No. of Fleets (by 2033)	4	20	7	6	26	20	6	12	37	138

Plan based on end-2025; there were fleets introduced in between.

Thesis 2. Sector Overkill Has Erased the Merger Premium – Fuel Shock May Strengthen the Scale Winner

Current EV/EBITDA of 2.94x, below the selected FSC peer median of c.4.05x, implying that the market is assigning limited value to merger completion, domestic FSC consolidation and KAL’s cargo/transpacific positioning.

Iran conflict (February 2026) triggered indiscriminate sector re-rating: Korean Air fell ~15% from ₩28,000 pre-war peak to current ₩24,700

Monopoly position structurally enhances fuel surcharge pass-through — the conflict that created the headwind also created the pricing environment to absorb it

De-escalation or oil stabilisation implies double re-rating: sector multiple recovery + merger premium re-emergence

ㅤ	31-Dec-25	ㅤ	16-Apr-26	ㅤ
ㅤ	P/E	EV/EBITDA	P/E	EV/EBITDA
Korean Air Lines 003490.KS	11.48x	4.07x	6.16x	2.94x
Japan Airlines 9201.TY	10.04x	3.46x	14.73x	4.02x
All Nippon Airways 9202.TY	7.89x	3.69x	10.40x	4.08x
Singapore Airlines C6L.SGX*	9.42x	4.46x	18.39x	4.07x
Cathay Pacific 293.HK	7.84x	3.42x	9.44x	3.46x
Delta Air Lines DAL.NYSE	9.31x	6.71x	12.95x	6.69x
IAG IAG.L	6.74x	2.68x	6.52x	2.53x
Median**	8.60x	3.58x	11.67x	4.05x

Singapore Airlines have a fiscal year end of March. ** Selected FSC Peer median excluding KAL. Note: Trading multiples are calculated as current enterprise value divided by FY2026E EBITDA, unless otherwise stated.

The current entry point follows two consecutive compression directing towards sector overkill. KAL trades at c.2.94x FY2026E EV/EBITDA, below the selected FSC peer median of c.4.05x excluding KAL. We think this discount is excessive: the market is pricing the fuel shock and travel-demand risk, but giving limited credit for domestic FSC consolidation, the Delta transpacific JV and KAL’s cargo franchise.

First was structural: post-pandemic revenge travel demand peaked in 2022 and 2023, driving exceptional cargo yields and passenger load factors that the market correctly identified as unsustainable. KAL’s OP peaked at KRW 2.8T in FY2022, before normalising to KRW 1.1T in FY2025; as yield competition intensified and cargo rates reverted. The stock de-rated; accordingly, falling from its post-pandemic highs, plus their commitment to Capex investment, merger completion; this is not a structural deterioration, but a return to baseline, which the merger synergies, fleet modernisation and cargo mix improvement have not yet been reflected as the two airlines operate concurrently. \

Second (which is now ongoing) compression cycle was exogenous. The Iran conflict in February 2026 triggered an indiscriminate sector re-rating that erased what remained of the merger premium. The result: stock trading at the Asian FSC peer average with zero credit, for either the completion of consolidation or the structural earnings improvement that follows it.

Two separate compression events stacked on top of each other, the unwind does not require both to reverse simultaneously; either one is sufficient to generate the meaningful upside from current levels.

The market is currently pricing KAL as a pre-merger carrier in a distressed fuel environment. Delta trades at 6.67x and United at 5.39x; premiums that reflect dominant hub positioning and structural pricing power on trunk routes. Korean Air now holds that same structural position on the Korea-North America corridor, the busiest transpacific market by revenue per ASK, and is receiving none of the valuation credit for it. The Iran conflict introduced a legitimate fuel cost headwind. It did not impair Korean Air’s slot portfolio, order book, cargo franchise, or competitive position. Normalisation implies convergence toward the global FSC peer average of ~4.8x — meaningful upside before any earnings growth from merger synergies is modelled.

The fuel shock is a real near-term headwind. However, South Korea’s international fuel surcharge framework allows part of the increase to be passed through to passengers, while KAL’s stronger post-merger route position should improve its relative ability to defend yields versus smaller LCC competitors. The key point is relative damage. LCCs are more exposed to price-sensitive leisure demand, short-haul discretionary routes and thinner balance sheets. In contrast, KAL benefits from larger scale, premium and corporate demand exposure, USD-linked international revenue, cargo revenue, existing fuel/FX risk-management infrastructure and stronger access to funding. The Iran conflict therefore creates an industry-level headwind, but not an equal headwind across the industry. It is more likely to pressure marginal LCC capacity than structurally impair KAL’s long-haul FSC franchise.

If the conflict persists, the Korean airline market could see capacity discipline, weaker LCC profitability and potentially further restructuring pressure. That would strengthen KAL’s post-merger position: fewer irrational short-haul seats, better pricing discipline and stronger group-level segmentation through Jin Air. In other words, the same macro shock that drove KAL’s de-rating could reinforce the industry structure behind the merger thesis.

Recent LCC capacity reductions suggest that fuel, FX and surcharge pressure is already affecting the more price-sensitive part of the market. This does not make KAL immune, but it supports the view that larger FSCs with stronger balance sheets, network redundancy and corporate demand exposure should be relatively better positioned.

Thesis 3. Cargo Franchise Upgrade + Semiconductor Supercycle + Aerospace Investment – Who Will Deliver Samsung and SK Hynix?

Korean Air Cargo sits at the physical origin point of the key segment of the global AI memory supply chain. This is not an airline dynamics story; it is a call on AI infrastructure build-out.

HBM is airborne, not maritime: Each H100/H200/Blackwell GPU sources HBM chips from Korean fabs to US and European data centres. Time-critical delivery — days, not weeks — makes ocean freight a non-substitute.

Mix shift is structural: The 2021-22 cargo super cycle was rate-driven and mean-reverted. The semiconductor mix shift is tied to fab geography, air freight irreplaceability, and KAL hub position at ICN. None of these factors mean-revert with economic cycles.

Fleet upgrade directly serves thesis: A350F deliveries (×7, from H2 2027) coincide with Samsung P5 and SK Hynix M15X fab ramps — demand meeting new supply capacity at the same time. 777-8F deliveries (×8, from 2028) bring 30% fuel efficiency gain and 25% lower cost per tonne.

Asiana cargo divestiture was ring-fenced: The merger remedy required divestiture of Asiana’s freighter fleet, not KAL Cargo’s. KAL’s 23-freighter operation is fully intact.

KOSPI hit 6,226 on 16 April 2026 (N.B.: 7,493.18 on 15 May 2026 Close as reference), up 44% YTD, mainly driven by Samsung Electronics and SK Hynix on strong demand for HBM chips in the AI-driven super cycle. Depending on sources, there are different views on the exact market size; however, one point is clear: the market is growing rapidly on demand for AI chips.

Year	Market Size	Manufacturer Market Share	Purchaser Market Share
2022	$0.8B	ㅤ	ㅤ
2023	$2.0B	SK Hynix (53%) Samsung Electronics (38%) Micron (9%)	ㅤ
2024	$18.2B	SK Hynix (52.5%) Samsung Electronics (42.4%) Micron (5.1%)	Nvidia (58%) Google (18%) AMD (8%) AWS (5%)
20258	$46.7B	SK Hynix (62%) Samsung Electronics (17%) Micron (21%)	Nvidia (73%) Google (11%) AMD (7%) AWS (3%)

For high-value, time-sensitive semiconductor components, air freight is often economically justified despite higher unit cost. Korean Air Cargo handled 103,783 tonnes of South Korea outbound freight in 1Q2026, representing 45.9% of total outbound cargo volume, supported by its dedicated freighter fleet and Incheon hub position. We cannot verify customer-specific cargo allocation between Samsung, SK Hynix and individual carriers. However, given KAL Cargo’s scale at Incheon, dedicated freighter capacity and long-haul network, we view KAL as one of the natural beneficiaries of rising Korea-origin high-value semiconductor air freight.

Concurrently, KAL is focusing on investing in and developing its Aerospace Division, which has been neglected for a long time. Diversification is the driver for further investment in the aerospace division, supported by stable order backlog and technical expertise. In 2025, KAL Aerospace division recorded KRW 779.6bn (4% of total revenue) but a strong growth since 2022 (KRW 491.0bn) with 16% CAGR. Among the division, military fleet MRO accounts for 30% of revenue and drone takes 12% (the rest goes to commercial fleet maintenance). Nonetheless this is growing fast with foreseeable order backlogs from ROKAF (KRW 3.9T)9, consortium with LIG Defence & Aerospace to develop a special military fleet (KRW 1.8T)10 and upgrade from Defence Acquisition Programme Administration (KRW 1T)11. These order backlogs should start to be recognised in the P&L from 2026 through the mid-2030s, supporting visible growth in KAL’s ancillary businesses.

Valuation

Financial Summary

Metric (KRW Bn)	2023A	2024A	2025A	2026E	2027E	2028E
Revenue	16,112	17,871	25,226	30,506	31,369	31,205
EBITDA	3,510	3,884	3,988	5,523	6,326	6,310
EBIT	1,787	2,088	1,132	2,354	2,953	2,746
Net Income	1,059	1,317	788	1,466	1,921	1,751
EPS (KRW)	2,877	3,248	2,109	3,981	5,215	4,755
Capex	1,917	2,906	4,312	5,716	5,191	5,062
EBITDA Margin	21.8%	21.8%	21.7%	18.1%	20.2%	20.2%
FCFE (pre-div)	N/M	N/M	N/M	152	952	1,175

FY2025 is a pro-forma merger year; FY2026E is the first clean full-year integration read. The apparent EBITDA margin compression from ~21.7% (FY2025A) to 18.1% (FY2026E) reflects the addition of Asiana’s lower-margin operations into the consolidated base rather than deterioration in underlying economics. Recovery to 20%+ margins by FY2028E is driven by synergy realisation and fleet renewal.

FY2026E Capex of KRW 5,716Bn represents fleet renewal peak: 777-8F (×8, from 2028) and A350F (×7, from H2 2027) deliveries. At any Brent price above USD 80/bbl, the 30% fuel efficiency improvement from the 777-8F makes fleet economics unambiguous. The FCFE inflection from negative/N/M to positive in FY2026E, accelerating through FY2027-28E, is the core driver of DCF value.

Financial Modelling – Assumptions Adopted

Revenue modelling: Segment bottom-up revenue projection has been adopted. Considering Air Transport including passenger transport and cargo transport takes 95% of total revenue, more detailed projection on Air Transport growth; Aerospace, Hotel and Other segments are projected to slow-down growth to a certain level.

Air Transport: For comparability reason, the past three-year (2023-2025A) is based on assumption of what-if the consolidation has been already happened, with the weighted average for ASK, capacity, load factor etc

Capacity is based on previous few years’ delivery cycle from Boeing and Airbus, on the fleet delivery, the announced delivery schedule for some fleets, disposal plans announced the seat capacity of each fleet type. Detailed breakdown provided in spreadsheet; however, rough consideration that half of newly introduced narrow-bodies will be utilised for domestic routes whilst wide-bodies will be 100% used for international flights.
Implied price includes the assumptions that all increased air fuel charges will be part of the topline increase and will be at least partially transferred to customer pricing (although it might be impossible to do so). Fuel surcharge is included in top-line revenue.
Load Factor implies the actual % of capacity utilised. This is implied that efficiency increases by route merge, or any synergies happening from merger.
ASK (Available Seats per Kilometre) is implied by capacity and number of fleets, that are increased and disposed during the period.

Operating Expense: For comparability reason, the past three-year (2023-2025A) is based on assumption of what-if the consolidation has been already happened and based on the information that KAL & OZ disclosed.

D&A are related to mostly fleet depreciation and the lease obligation amortisation. These are based on the numbers of fleet available, how much they were introduced and disposed during the period. Also, the useful life was assumed based on the average useful life of aircraft (23 yrs), engine (23 yrs) and air fleet (22 yrs) as disclosed.

CAPEX includes the potential introduction of fleets. As Boeing and Airbus does not disclose fully on the future delivery schedule, it is assumed that A321 neo will be delivered in the next few years; and wide-body fleets will take average of 7-yrs of delivery timeline, with spreading out into different schedule. The amount of Capex is determined based on the fleet listed price, and assumed that there are 30% haircut discount, 20% will be accumulated in-progress and 70% will be on delivery, with 10% being down payment. Further, that is not including the Jin Air and other LCC’s fleet introduction schedule, which is adjusted 10% above the calculation.

Lease & Owned aircraft is based on the historical percentage of their flight ownership.’

Intrinsic Valuation (FCFE Model)

We employ two primary valuation frameworks: an FCFE DCF as the primary method and peer EV/EBITDA comps as the cross-check. The DCF is our preferred primary given the FCFE inflection profile — KAL transitions from negligible free cash flow through FY2025 to a structurally positive FCFE from FY2026E, driven by merger synergies and cargo mix improvement.

FCFE	2026F	2027F	2028F	2029F	2030F	2031F
FCFE (post dividend)	(361)	280	562	767	1,384	1,024
k(e)	10.11%	9.92%	9.85%	9.73%	9.65%	9.65%
	PV(FCFE2026)	PV(FCFE2027)	PV(FCFE2028)	PV(FCFE2029)	PV(FCFE2030)	PV(FCFE2031)
Accumulated PV of FCFE	9,568	10,897	11,698	12,288	12,717	12,561
PV of Financial Assets	1,827
Equity Value at t0	11,395
Shares Outstanding (mn)	368
Estimated Share Price	KRW 30,900

DCF Parameters

Parameter	Value	Rationale & Justification / Source
Risk-free rate (Rf)	3.54%	KTB 10-year yield, as of 16 April 2026
Equity Risk Premium	4.87%	Adopted from Damodaran, Republic of Korea ERP
Size Premium	1.50%	Kroll
Equity Beta	0.90	3-year monthly return
Relevered Beta (range)	0.74 – 0.90	Unlevered beta of 0.41 (for 2026), relevered with the weight of capital
Cost of Equity (kE)	9.65% – 10.11%	Adopted by CAPM
Korea Credit Rating & Spread	A / 1.72%	Korea Credit Rating agency rating and spread
Cost of Debt (kD)	5.26%	Rf + Spread
Tax rate	26.4%	Korea Statutory Corporate Tax Rate including local tax
After-tax Cost of Debt	3.87%	*kD(1-t)**
WACC	5.08% - 5.38%	Range across forecast
Terminal Growth Rate	1.50%	Lower than Korea economy growth rate, conservative approach
Projection Period	2026-2031	ㅤ

We adopt the FCFE result as primary given the cleaner mapping to equity holder cash flows during a period of substantial fleet capex (FY2026E peak: KRW 5,716Bn) and ongoing post-merger working capital normalisation. Detailed annual FCFE build, including revenue drivers by segment, EBIT margin path, working capital schedule, and lease treatment, is maintained in the accompanying Penman-reformulated financial model.

Residual Income Model is adopted to cross-check the results. RIM produces an implied value of KRW 36,900, c.KRW 6,000 above the DCF target, which is showing the synergy of abnormal return (ROCE is higher than cost of equity every year). RIM, the equity-direct method, anchored on CSE plus the PV of abnormal earnings above cost of equity. This is the ‘monopoly position’ post-merger.

Residual Income	2026F	2027F	2028F	2029F	2030F	2031F	2032 (T)
Net Income (after one-off)	1,466	1,921	1,751	1,847	1,815	1,729
Beginning CSE	10,954	11,907	13,156	14,293	15,494	16,673
k(e)	10.11%	9.92%	9.85%	9.73%	9.65%	9.65%	9.65%
Residual Earnings (NI - kE x Beg. CSE)	359	740	455	456	320	120	122
ROCE = NI / Beg. CSE	13.39%	16.13%	13.31%	12.92%	11.71%	10.37%
	PV(RE2026)	PV(RE2027)	PV(RE2028)	PV(RE2029)	PV(RE2030)	PV(RE2031)	TV2032
PV of RE	326	611	342	313	200	68	777
PV of Total Cash Flows	2,637
CSE at t0	10,954
Equity Value at t0	13,591
Shares Outstanding (mn)	368
Estimated Share Price	KRW 36,900

Relative Valuation

Applying the FSC peer median multiples, excluding KAL, to FY2026E estimates yields two independent cross-check targets, all substantially above both the entry price and our DCF target. We do not adopt the comp-derived prices as the primary anchor given the peer set’s own valuation uncertainty, but the consistent direction and magnitude of the mispricing support the DCF conclusion. Our DCF target of KRW 30,900 sits well below both peer-implied prices — we view this as deliberately conservative, applying no explicit merger premium and no semiconductor super cycle re-rating.

Method	Peer Median (26E)	Implied TP	Upside vs. Entry
EV/EBITDA	4.05x	41,164	+67.7%
P/E	11.67x	46,486	+89.4%

Note: Trading multiples are calculated as current enterprise value divided by FY2026E EBITDA, unless otherwise stated. EV includes market capitalisation, net debt, lease liabilities and other enterprise-value adjustments, less cash and financial assets.

Sensitivity Analysis

		β	ㅤ	ㅤ	ㅤ	ㅤ
		β=0.80	β=0.85	β=0.90	β=0.95	β=1.00
		k=9.8%	k=10.0%	k=10.1%	k=10.3%	k=10.4%
	1.30%	31,500	31,000	30,400	29,900	29,400
	1.40%	31,800	31,200	30,700	30,200	29,600
g	1.50%	32,100	31,500	30,900	30,400	29,900
	1.70%	32,700	32,100	31,500	30,900	30,400
	2.00%	33,600	33,000	32,300	31,700	31,200

Within the range, the beta/growth assumption does not have a huge downside risk as beta = 1.00 (market beta) should also be KRW 29,400 with lower growth rate of 1.30%.

The bull case scenario is more dependent on demands and external components.

Forensic Accounting & Creditworthiness

Forensic Accounting (M-Score)

The Beneish M-Score does not indicate elevated earnings manipulation risk over the analysed period. Also, for the forecasted period of 2026-2031, there were no material outstanding numbers that are further used to manipulate the accounting modelling.

ㅤ

Pro-Forma

ㅤ

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

M-Score

(2.7)

(3.0)

(2.7)

(2.4)

(2.8)

(2.2)

(2.6)

(2.9)

(2.8)

M-score = −4.84 + 0.920·DSRI + 0.528·GMI + 0.404·AQI + 0.892·SGI + 0.115·DEPI − 0.172·SGAI + 4.679·TATA − 0.327·LVGI, Manipulator if M > −2.22

Probability of Bankruptcy

ㅤ

Pro-Forma

ㅤ

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

Z-Score

(0.3)

(0.7)

(1.2)

(1.0)

0.2

1.2

0.9

0.1

(0.0)

0.2

0.3

0.4

0.6

0.8

1.0

X1=Working Capital/TA X2=Retained Earnings/TA X3=EBIT/TA X4=Book Equity/(Total Liabilities) Aviation sector structurally carries high debt; Z-Score benchmarks are indicative only.

Majority of the period are within the Distress Zone, given the high leverage of aviation sector (carrying high debt and high lease, due to the size of fleets). Hence, this is a indicative of size of debt, not the actual possibility of bankruptcy.

Investment Risk & Catalysts

Risks

The key risks are not cosmetic. Fuel, FX, integration execution, regulatory scrutiny and fleet delivery delays could all defer or reduce the expected re-rating. The investment case therefore depends on whether KAL’s structural consolidation benefits outweigh these cyclical and execution risks over the forecast period.

Risk	Category	Direction	Assessment & Mitigation
Fuel & FX	Macro	Down	- Jet fuel represents 25-30% of Opex. KRW depreciation compresses dollar-denominated revenue.- Mitigation: new-generation fleet deliveries from 2027 provide a structural fuel-efficiency offset. KAL also has partial natural hedges from foreign-currency revenue, existing fuel/FX risk-management practices, greater surcharge pass-through capacity and better access to liquidity than smaller LCCs. In a prolonged fuel/FX shock, the risk may therefore be asymmetric: KAL suffers near-term margin pressure, but weaker LCCs may face capacity cuts or restructuring pressure.
Iran Escalation	Macro	Down	- Further escalation suppresses ME-routed passenger demand.- Core Mitigant: KAL is primarily transpacific and SEA focused, rather than EMEA bound.- Secondary mitigant: Hormuz uncertainty structurally reinforces the cargo mix shift towards air freight.
FTC & Regulatory	Regulatory	Down	- FTC has fined for capacity compliance breaches and fare increase breaches post-merger. Continuous pricing scrutiny on domestic routes.- Not existential – approvals are legally irreversible; domestic market pricing scrutiny does not affect the transpacific and cargo thesis.
Fleet Delivery Delays	Supplier	Down	- Boeing and Airbus production delays remain systemic across the industry.- B777-8F and A350F delivery slippage defers fuel efficiency gain and cargo yield thesis.- This is a timing risk, not a cancellation risk; demand for next-gen freighters remains structurally unaffected.
Asiana Integration	Operation	Up	- Cost synergies and slot optimisation ahead of schedule would produce EBITDA margin beats versus the conservative FY2026E baseline.- Each positive surprise forces re-evaluation of the current zero-merger-premium valuation.
Russian Airspace Reopening	Operation	Up	- Russia closed its airspace to European and Korean carriers following the 2022 Ukraine invasion, forcing KAL to reroute Europe-bound services via Central Asia or the Middle East. The detour adds approximately 2-3 hours per sector, directly raising fuel burn, crew costs, and CASM on every Europe flight. KAL’s Europe network currently operates at a structural cost disadvantage relative to Chinese carriers and, prior to the 2026 conflict disruption, Gulf carriers — both of which retained overflight access.- Reopening of Russian airspace would restore the polar routing that KAL operated pre-2022. The impact is immediate and mechanical: shorter block hours, lower fuel uplift per sector, reduced crew positioning costs. On a per-flight basis, the fuel saving alone on ICN-LHR or ICN-FRA is estimated at USD 15,000-25,000 per rotation. Across KAL’s European frequency schedule, full restoration could add KRW 150-300Bn annually to operating profit with zero incremental capex. This is not in the base case. Any credible ceasefire framework or bilateral airspace agreement between Korea and Russia would be a direct positive re-rating trigger, and the market is not pricing it. The optionality is asymmetric and free.

Catalysts

Several re-rating triggers require Korean Air to do nothing. The asymmetry is deliberate: our thesis does not depend on execution; it depends on market recognition of a position already achieved.

Catalyst	NT/LT	Expected Timing	Significance
Q1 2026 Earnings	Near-term	May 2026	- First clean integration read.- Watch: passenger yield on North America routes, cargo yield/ATK, SG&A as % revenue. Any positive surprise on operating margin vs. standalone baseline is a direct re-rating trigger.
Fuel Surcharge Repricing	Near-term	Rolling 2026	- KAL has monopoly pass-through pricing capacity that competitors in contested markets lack. - A surcharge increase announcement demonstrates the structural pricing power of the FSC monopoly thesis.
Iran De-escalation / Brent <$90	Near-term	Binary / Ongoing	- Sector-wide re-rating.- KAL has the highest leverage given the largest erased merger premium. - Does not require KAL to act. Asymmetric exposure.
Legal Merger Completion	Near-term	December 2026	- The formal legal absorption of Asiana Airlines is scheduled for December 17, 2026. Note: the brand rebrand (‘KOREAN’ livery, new logo) was already unveiled in March 2025. - The December completion forces a market re-evaluation of KAL’s multiple on a clean post-consolidation basis; the stock cannot continue to be priced as merger-in-progress after the absorption is legally finalised.
LCC capacity rationalisation / restructuring	Near-term to medium-term	2026-2027	- Sustained fuel, FX and funding pressure could force smaller LCCs to reduce capacity or rationalise routes. This would support pricing discipline and reinforce KAL’s stronger post-merger position.
A350F First Delivery	Medium-term	H2 2027	- Cargo cost/ATK declines as legacy 747-400F frames retire. - Thesis moves from committed to visible in reported numbers.
777-8F Delivery Programme	Long-term	From 2028	- 30% fuel efficiency gain, 25% lower cost/tonne. - At any Brent >$80, the economics are structurally unambiguous.
Samsung P5 + SK Hynix M15X Ramp	Medium-term	2027–2028	- Volume increase at Incheon origin point; incremental high-yield cargo without incremental marketing spend. - Direct read-through to cargo revenue and yield.
Transpacific Yield Recovery	Medium-term	FY2026–27E	- North America accounts for ~30% of passenger revenue. - Supply-constrained, dollar-denominated. Post-pandemic normalisation of this corridor is the single largest passenger revenue driver.

Disclosure & Important Notes

This report has been prepared as an independent equity research publication and is intended for informational, educational and academic purposes only. It does not constitute investment advice, a solicitation to buy or sell securities, or an offer of any kind. Readers should conduct their own due diligence and consult a qualified financial adviser before making investment decisions. All financial estimates are the author’s own projections and are subject to material uncertainty. Past performance is not indicative of future results. Currency: all estimates in Korean Won (KRW) unless otherwise stated. Entry price as of 12 April 2026.

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