Travel In China: China Southern Swings to Loss on Forex Fluctuation Impact

(Bloomberg) China Southern Airlines Co., the country's largest airline by passengers carried, posted a first-half net loss after suffering the sharpest foreign-exchange loss among the three biggest Chinese carriers.

The Guangzhou-based carrier swung to a net loss of 1.06 billion yuan ($173 million) from 344 million yuan in net income a year ago, according to a Hong Kong exchange filing yesterday that's based on international accounting standards.

China Southern cited fluctuations in the Chinese currency for its weakening profit in a statement issued last month. Air China Ltd. and China Eastern Airlines Corp. had also issued similar warnings in July. The yuan, which weakened 2.4 percent against the dollar in the first half, will probably fall about 1 percent in the second half, according to the median of 58 economist and analyst forecasts compiled by Bloomberg.

"If the yuan's picking up, it's positive for airlines," said Claire Teng, a transportation analyst at Standard Chartered Plc. ahead of the earnings release. "Chinese airlines will swing into a forex gain."

Yield per revenue passenger kilometer fell 1.7 percent to 0.58 yuan in the first half, the airline said.

China Southern rose 2 percent in Hong Kong trading yesterday to close at HK$2.61 before the earnings announcement. The stock has dropped 14 percent this year, compared to a 6.2 percent gain in the city's benchmark Hang Seng Index.

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The airline recorded a 1.11 billion yuan net foreign exchange loss, compared with a 1.52 billion yuan net gain a year ago, it said. That compares to a 660 million yuan foreign exchange loss for China Eastern and 721 million yuan for Air China.

China Southern's net loss came despite year-on-year increases of 8.7 percent in operating revenue and 10.2 percent in passenger traffic volume, according to the statement.

The airline's net loss was near the higher end of a 900 million yuan to 1.1 billion yuan range it had indicated last month. Net income reported by Air China and China Eastern was at the stronger end of guidance they had provided earlier.

Shanghai-based China Eastern reported a 98 percent tumble in first-half net income to 12 million yuan from 622 million yuan a year earlier, the company said in a Shanghai exchange statement yesterday.

Beijing-headquartered Air China on Aug. 26 said its first-half net income dropped 55 percent to 510 million yuan, compared with a forecast of a 55 percent to 65 percent decline.

Source: Bloomberg News by clement tan

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