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Korean Air Lines Co. aircraft sit on the tarmac at Incheon International Airport in Incheon, South Korea, on Wednesday, Aug. 12, 2020. Income from foreign visitors to South Korea fell 73% to $419.6 million in June compared with the same period last year, according to data from Bank of Korea. This is the fifth consecutive month of decrease. Photographer: SeongJoon Cho/Bloomberg (Bloomberg)
Korean Air Lines Co. aircraft sit on the tarmac at Incheon International Airport in Incheon, South Korea, on Wednesday, Aug. 12, 2020. Income from foreign visitors to South Korea fell 73% to $419.6 million in June compared with the same period last year, according to data from Bank of Korea. This is the fifth consecutive month of decrease. Photographer: SeongJoon Cho/Bloomberg (Bloomberg)
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How a fortunate few airlines profit in a pandemic

As Covid-19 eviscerates the travel business, airlines are swapping seats for freight space

The only major airlines making money these days are busy flying cargo, not passengers.

Of the world’s 30 largest airlines by revenue, just four reported profits for the April-June quarter, according to a Wall Street Journal analysis. They are all based in export-heavy South Korea or Taiwan, benefiting from the surge in demand for tech components and electronic gadgets as more people work from home, and for personal protective equipment, much of it produced in Asia. Continuing demand for automobile parts and other Asia-made goods has also helped.

The analysis excluded some major carriers that didn’t report recent quarterly earnings.

Industrywide cargo revenue is expected to reach about $111 billion this year, according to the trade group International Air Transport Association. That is only a slight uptick from its pre-pandemic forecast, but the plunge in passenger revenue—IATA has slashed its 2020 forecast to $241 billion from an initial $581 billion—means cargo’s contribution would represent more than a quarter of total industry revenue, compared with the typical eighth.

For the four airlines that showed a profit in the latest quarter—Korean Air Lines Co., Asiana Airlines Inc., China Airlines Ltd. and EVA Airways Corp.—cargo’s share of revenue ranged from 72% at Korean Air to 93% at China Airlines, compared with no more than a third last year.

When the pandemic hit, it wiped out some 40% of the world’s capacity for air cargo carried in the bellies of passenger planes, according to the trade group IATA. Plenty of airlines looked to fill the gap and boost cargo capacity as the pandemic triggered mass layoffs and widespread flight cancellations and led governments to provide more than $120 billion in aid. They are using passenger planes for cargo operations temporarily, stashing freight in overhead bins and buckling it into seats or removing seats altogether. Travelers aren’t allowed aboard with cargo in the cabin.

The four carriers that showed profits enjoyed gains because they already had sizable cargo fleets. The profit boost came from the low supply of global airfreight capacity that sent the cost of shipping goods on common routes from Asia to the U.S. or Europe soaring; they have increased less going the other way. IATA’s latest figures show capacity still about a third below last year’s levels.

Rates have fallen from recent highs, according to TAC Index, a market researcher, and industry analysts say they should decline further later this year—though demand for shipping Covid-19 vaccines could disrupt that.

Seoul-based Korean Air recently removed passenger seats on two planes and has plans to soon modify two more, said Eum Jae-dong, the head of the airline’s cargo business division. One unexpected benefit: Regulators still treat them as passenger flights, meaning goods can now fly to certain cities, like Yangon, Myanmar, previously difficult to reach for cargo fleets.

“They can fly into airports and other destinations where cargo aircraft couldn’t go because of airport conditions or the lack of operational equipment," Mr. Eum said.

But their advantage is also their limitation. Under aviation rules, a modified passenger plane cannot make multiple stops as an airfreight plane, according to Kim Yu-hyuk, an analyst at Hanwha Investment & Securities Co. in Seoul. They can make only round trips, as they typically would while carrying passengers.

Routes for airfreight carriers from South Korea and Taiwan typically begin with transporting locally made high-value electronic components to China or Southeast Asia. There, the components are dropped off and the plane picks up finished products to fly to Europe or North America. On the way back home, the planes often carry fresh foods and pharmaceuticals.

U.S. airlines, despite having the federal authority to do so, largely haven’t removed seats to fly more cargo, partly because most flights are domestic, using narrower-body planes that lack significant cargo capacity, industry experts say.

Still, U.S. carriers started cargo-only flights using just the bellies of their planes at the start of the pandemic and have now flown thousands of them—1,200 since February for Delta Air Lines Inc. alone, which now averages about 50 a week, a spokesman said. The airline did remove seats from one Boeing 777-200ER, boosting its cargo capacity by 35%. The plane was first used on Sept. 11 for a cargo charter flight between Mumbai and New York. Delta, which is retiring its 777 fleet, has no current plans to reconfigure more planes, the spokesman said.

Seats have also come out at Air Canada—on three 777-300ERs—and European carriers such as International Consolidated Airlines Group SA’s British Airways and Deutsche Lufthansa AG. China Southern Airlines Co. reconfigured two Airbus A330 passenger planes. Dubai-based Emirates, which has one of the world’s largest air-cargo fleets, has ripped out economy seats on 10 passenger jets since June.

“The airline industry is still bleeding cash by the billions each month," said Tim Clark, president of privately held Emirates, in a written statement. “We’re taking baby steps on the path to recovery."

The shift to cargo is a stopgap measure, say aviation experts. “The core competency for passenger airlines is to serve passengers," said Bijan Vasigh, of Embry-Riddle Aeronautical University in Daytona, Fla., who specializes in airline economics. But about 3 billion fewer passengers are expected to fly this year than last, with airlines reducing available seats by about half—by about two-thirds on international routes—according to the U.N.-affiliated International Civil Aviation Organization.

Meanwhile, for the April-June quarter Korean Air reported an operating profit of $90 million, hometown rival Asiana Airlines $19 million, Taiwan’s EVA Airways $6 million and China Airlines, also from Taiwan, $92 million—more than four times what it had earned a year earlier.

This month, Korean Air deployed its first modified Boeing 777-300ER; removing most of its 291 cabin seats added 10.8 tons of capacity to its previous limit of 22 tons, the airline said. The newly cleared cabin and belly were packed with boxes of automobile parts, garments and electronics devices.

“South Korean carriers have a geographical advantage being plugged into a location that produces goods," said Mr. Kim, the Hanwha analyst. “The same applies to Taiwanese carriers."

—Alison Sider in Chicago and Lekai Liu in Beijing contributed to this article.

Write to Eun-Young Jeong at Eun-Young.Jeong@wsj.com

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