HONG KONG—China's top three state-owned carriers saw their net profits drop by more than a quarter last year, as intensifying competition weighed on ticket prices despite continued growth in air-travel demand.
The state carriers— Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp.—this week posted a combined 2013 net profit of around 7.62 billion Chinese yuan ($1.24 billion), down 28% from a year earlier.
Guangzhou-based China Southern Airlines, the last of the top three state-run airlines to report its full-year earnings Friday, said its 2013 net profit was 1.99 billion yuan, according to international accounting standards, down 24% from a net profit of 2.62 billion yuan a year earlier. Its revenue fell 1% to 98.55 billion yuan from 99.51 billion yuan.
China Southern Airlines' earnings mirror the disappointing performance from Beijing-based rival Air China, which Tuesday reported a 32% decline in 2013 net profit to 3.36 billion yuan, signifying ongoing competitive pressures in the industry.
Shanghai-based China Eastern Airlines said Wednesday its 2013 net profit fell 25% to 2.38 billion yuan as intensifying competition weighed on its profitability.
Despite the nation's air-travel boom, China's three major state carriers face rising pressure on yields, a measure of profitability, in the domestic market, where intensifying competition is seen amid moves by the government to liberalize the domestic airline market and for the first time promote the growth of budget airlines. Slower economic growth and a frugality campaign by Chinese President Xi Jinping had also weighed on sales of first- and business-class tickets.
Foreign-exchange gains helped cushion Chinese carriers' earnings as they have a lot of non-yuan debt to finance the purchase of aircraft. China Southern said it booked a net foreign-exchange gain of 2.90 billion yuan, much bigger than a gain of 267 million yuan it recorded a year earlier, as the yuan appreciated at a faster pace against the dollar in 2013.
The three carriers recorded a combined net foreign-exchange gain of 6.82 billion yuan in 2013, compared with a 534 million yuan of net foreign-exchange gain in 2012.
China Southern's weak earnings performance comes as the Chinese carrier, which has the biggest domestic presence, seeks to boost its international reach amid increasingly congested home market. It plans to operate four weekly flights into New York's John F. Kennedy International Airport from Guangzhou starting in August, extending its North American reach to the East Coast beyond existing gateways of Los Angeles and Vancouver.
The carrier is building its international hub in the southern city of Guangzhou, and last year launched direct flights to Moscow, while increasing frequencies to cities in Australia, New Zealand, the U.K. and Canada.
Source: Wall Street Journal by Joanne Chiu
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