Chinese Airlines May Return To Profit This Year
China's top three airlines, which lost more than USD$4 billion in 2008, may return to profit this year as a faster-than-expected rebound in domestic air travel in the first quarter could extend through the year.
After years of double-digit growth, China's airlines faced strong headwinds last year as a series of natural disasters and a slowing economy hit demand for air travel.
But air traffic has resumed its normal growth pattern this year, as Beijing's aggressive stimulus package to bolster economic growth lifted consumer confidence, boosting travel.
Flag carrier Air China, which reported a CNY9.15 billion yuan (USD$1.3 billion) net loss last year under Chinese accounting standards, was profitable in the first quarter.
Loss-making China Eastern Airlines and China Southern Airlines, due to release quarterly figures later this month, are expected to see positive results, analysts said.
"No one had expected such a strong rebound that came so soon. It seems the momentum could well be extended into the hot travel seasons in Q2 and Q3, in particular," said Li Lie, an industry analyst with China Securities.
Air China's Hong Kong-listed H shares rose 3.6 percent on Friday, beating the Hang Seng Index's 1.7 percent gain.
Air China carried 9.47 million passengers in January-March, up 14 percent from a year earlier, while China Eastern and China Southern have predicted passenger travel gains of 12 percent and 10 percent respectively, company data showed.
"There's little question that Air China and China Southern will return to the black for the full year, even a laggard like China Eastern has a chance to reverse its fortunes," said Yu Jianjun, an industry analyst with Huatai Securities.
China Eastern, the weakest of the big three carriers, was saddled with a CNY13.9 billion net loss last year, compared with a CNY603.96 million net profit in 2007, under Chinese accounting standards. Total debts exceeded assets by CNY11.1 billion, with end-2008 net debt per share of 2.38 yuan.
China Eastern's A shares, traded in Shanghai, could be delisted if the airline remains loss-making this year.
JET FUEL
Beijing's policy incentives and capital injections to China Eastern and China Southern have helped nurse the ailing airlines back to health, analysts say.
Like international rivals, airlines in China have struggled with slowing demand for air travel and volatile fuel prices.
China's aggressive cuts in jet fuel prices since the 2008 fourth quarter -- more than halving prices to CNY3,530 per tonne in the past six months -- have also helped.
Jet fuel makes up about 40 percent of Chinese airlines' operating costs.
Air China and China Eastern recorded huge mark-downs in the value of their fuel hedging contracts in 2008 due to a plunge in oil prices late last year. Those hits could shrink significantly this year as oil prices steady in global markets.
In contrast, Air China's Hong Kong partner, Cathay Pacific Airways, said on Friday it would cut passenger and cargo capacity from next month following a sharp drop in first-quarter turnover.
Analysts blamed Cathay's weak turnover on its much larger exposure to international routes, especially long-haul routes to the United States and Europe, which continue to struggle in the global downturn.
"Chinese airlines' limited global exposure has actually helped them this time. Their first-quarter volume was very good as they have a vast domestic market to fall back on," said China Securities' Li.
