Shares of South Korean aviation service companies are expected to extend rally led by a surge in air passengers and cargos on top of the recent retreat in international oil prices.

The country’s largest full-service carrier Korean Air Lines Co. and its holding entity Hanjin Kal finished Friday at new 52-week highs of 35,500 won ($31.70) and 23,500 won, respectively. Shares of T’way Holdings Inc., holding entity of the country’s major budget carrier Tway Air Co., also reached a one-year high of 3,155 won on the same day. Shares of Asiana Airlines Co., the country’s second largest full-service carrier, and budget carrier Jeju Air Co. hit this year’s highs of 5,100 won and 36,400 won, respectively.

Their recent bull run is largely owed to a rise in demand for overseas trips and exports of information technology (IT) products such as semiconductors and smartphones.

The cumulative number of air passengers on international lines during the first four months of this year jumped 8.9 percent compared to the same period last year. The local airlines facing a sharp drop in air services to and from China following Beijing’s ban on trip to Korea in retaliation against Seoul’s deployment of U.S. anti-missile system successfully offset the loss from China lines with the addition of other routes including Japan, Southeast Asia, and Europe.

Shares of aircraft operators got a further boost from news on Friday that member countries of oil cartel Organization of the Petroleum Exporting Countries (OPEC) on Thursday agreed to extend cuts in oil output agreed on November last year by nine months to March 2018, falling short of expectations and leading to a plunge in international oil prices. With the oil output reduction to be kept at 1.8 million barrels per day for the next nine months, Brent crude futures prices retreated nearly 5 percent.

The eased burden on fuel cost on top of packed flights would likely help the bottom line of air carriers

The unusually long holiday week around Chuseok in early October is expected to improve their third-quarter earnings, said Choi Go-un, an analyst at Korea Investment & Securities. A recovery in semiconductor and smartphone shipments is also expected to lead freight traffic to continue to rise in the coming months.

A total of 12 securities companies recommended buy in Korean Air Lines in the recent month and set the price target at 38,625 won, which is 8.8 percent higher than Friday’s closing of 35,500 won. Over the same period, 10 brokerage houses advised buy in Jeju Air and five recommended buying on Asiana Air and Hanjin Kal.

As of 2:10 p.m. on Monday, Korean Air Lines stocks stand at 35,150 won, down 0.99 percent from the previous day while Asian Airlines dropped 1.57 percent to 5,020 won and Jeju Air also lost 0.83 percent to 36,050 won, taking a breath from recent gains. Hanjin Kal shares stand at 23,650 won, down 0.85 percent.

By Chung Woo-sung

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