South Korean aviation stocks rally as Won strengthens

South Korean aviation stocks are experiencing a significant rally driven by the strengthening of the Korean Won against the US Dollar. As the exchange rate dropped into the 1,300 Won range, major carriers have seen substantial gains in their share prices.

Korean Air has emerged as a primary beneficiary, with its stock price rising approximately 15% to 17% over the past month, reaching its highest closing price in nearly five years. Other domestic carriers, including Asiana Airlines and Jeju Air, have also posted double-digit increases, outperforming the KOSPI index.

The rally is attributed to the reduced financial burden on airlines, which typically settle major expenses such as aviation fuel, aircraft lease fees, and maintenance costs in US Dollars. A stronger Won lowers the Won-denominated cost of these essential services. Additionally, a declining exchange rate reduces the book value of foreign currency-denominated debt. For instance, Korean Air's net foreign currency debt stood at approximately $5.6 billion at the end of the first half of the year; a decrease in the exchange rate significantly improves its accounting profit/loss position.