China's Top Airlines Post Sharp Profit Fall

Source: Wall Street Journal by Joanne Chiu HONG KONG—China's top three state-owned carriers saw their net profits dive by at least a third last year, because growth in demand for air travel weakened while the yuan rose at a slower pace against the U.S. dollar. The airlines—Air China Ltd., China Southern Airlines Co. and China Eastern Airlines Corp. —on Tuesday posted a combined net profit of around 10.21 billion yuan ($1.64 billion) for 2012 according to international accounting standards. That represents a decline of 39% from around 16.74 billion yuan in the preceding year, and shows that China's state-owned carriers aren't immune to the industry's global decline. The carriers have in recent years fared better than their international rivals thanks to government financial support and growing domestic air travel. Although that trend continued in 2012, their earnings growth slowed because of strong domestic competition and the relative strength of the U.S. dollar during the year. Chinese airlines were unable to boost profits through foreign-exchange gains last year, unlike in 2011. The three carriers recorded a combined net foreign-exchange gain of 523 million yuan in 2012, a fraction of the 7.60 billion yuan gain in 2011 when the Chinese currency rose 4.7% against the dollar. Last year, the Chinese yuan appreciated just 1% against the U.S. dollar, and it has risen 0.3% so far this year. A strong Chinese currency benefits Chinese airlines, because they have a lot of non-yuan debt to finance the purchase of aircraft. China Southern., the nation's largest airline by fleet size, posted the weakest set of results of the three carriers, with its 2012 net profit falling 49% to 2.62 billion yuan. The Guangzhou-based carrier said fuel costs, which accounted for 44% of total operating costs, rose 15% to 37.4 billion yuan. Flag carrier Air China, with its large international network, posted a 35% decline in net profit because of a slowdown in international traffic as well as weakening demand for air cargo. The Beijing-based airline said its 2012 net profit weakened to 4.64 billion yuan from 7.08 billion yuan a year earlier. Its earnings were also hit by a lower profit contribution from Hong Kong-based Cathay Pacific Airways Ltd., in which it has a 30% stake, as well as a more than 1 billion yuan loss at their cargo joint venture. Cathay Pacific earlier said it posted an 83% fall in net profit last year because of pricing pressures for its premium seats and continued weakness in its cargo business. Like Air China, Shanghai-based China Eastern reported a 35% fall in 2012 net profit. The smallest of the three state-owned airlines had a net profit of 2.95 billion yuan. from China Travel & Tourism News http://www.chinatraveltourismnews.com/

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