Ceasefire Elevates Prospects for Airlines, Construction Industry

A two-week ceasefire between the United States and Iran will pave the way for Korea’s aviation and construction firms to ease cost pressures and improve earnings prospects amid falling global oil prices, industry officials said Wednesday.

International crude oil prices plunged sharply following the truce announcement. On Wednesday, West Texas Intermediate (WTI) futures dropped as much as 19 percent on the eased tension in the Middle East. The oil price fall comes as a boon for airlines in particular, as fuel costs typically account for around 30 percent of their total expenses.

As the ceasefire agreement was clinched on condition of reopening the Strait of Hormuz, a critical oil shipping route in the Middle East, concerns over the oil price hike have also been alleviated by the announcement.

The US dollar also weakened its valuation against the Korean won, which also brings major relief to airlines, as they pay for fuel in dollars. The won-dollar exchange rate closed at 1,470.6 won per dollar, Wednesday, down 33.6 won from the previous session, and continued its downward trend throughout the day.

“If the temporary ceasefire leads to broader expectations of a lasting peace, the oil price and exchange rate will likely stabilize further, which will improve the profitability of airlines and revitalize demand for travel,” an official from the industry said.

Major airlines here welcomed the improved prospects, as many have entered emergency management mode in response to surging fuel costs.

Expectations for a possible end to the current armed conflict in the Middle East has created positive reactions across the market. Shares of Korean Air closed up 8.01 percent on the benchmark KOSPI and Asiana Airlines shares also inched up 2.9 percent during the same period.

Major low-cost carriers (LCCs) also reacted positively to the ceasefire between the US and Iran, with shares of Jin Air, T’way Air and Jeju Air achieving gains.

The benefits of the ceasefire are not limited to the aviation sector.

Construction firms here are also expected to benefit, as the agreement raises the likelihood of winning reconstruction projects across the Middle East.