A weaker yuan crushed the first-half net profits of China's three largest
airlines, statements from the carriers show.
China Eastern Airlines Co Ltd on July 18 estimated that its net profit would
be no more than 50 million yuan ($8.06 million) in the first six months,
compared with 763 million yuan a year earlier.
Air China Co Ltd, the flag carrier, warned of a profit decline of 55 to 65
percent in the first half of 2014, according to a statement on July 14.
And China Southern Airlines Co Ltd, the largest carrier in China by fleet
size, has been hit even harder. An announcement said its first-half net loss was
900 million to 1.1 billion yuan, compared with a year-earlier profit of 339
million yuan.
All cited exchange losses, which resulted from the yuan's depreciation in the
first half, while they all posted exchange gains in 2013.
As of June 30, the middle rate for the renminbi was 6.1528 per dollar, down
538 basis points from Jan 1.
The depreciation drove up the carriers' financial expenses, as their
liabilities-mostly aircraft purchases-are mainly in dollars, analysts said. They
added that China Southern, with the largest fleet, has more dollar-denominated
debt than the others, and its profit fell accordingly.
Declining income has also cut the carriers' profit, as China's entire
aviation industry is "in recession", said Su Baoliang, an aviation analyst at
Citic Securities Co Ltd.
In the first half, the carriers' average load factor declined year-on-year,
as did ticket prices, Su said.
"We forecast that the recession of the civil aviation industry in China will
persist until the second half of next year," Su said.
The airlines also need to consider the future, as their capacity is
increasing faster than demand, Su said.
Macroeconomic growth in China will continue to be slow, he said, and that
will affect demand for air services.
"To get more income, the airlines need to control their fleet expansion. We
will see slight capacity growth in the next two years," Su said.
In the short term, income is likely to rise in the third quarter, which is
the peak travel season, said Huang Jinxiang, an analyst at Haitong Securities
Co. At that time, load factors and ticket prices will be higher, Huang said.
GLANCE
Expected net profit/loss in H1 2014
China Southern Airlines:-900 million yuan to -1.1 billion yuan
China Eastern Airlines: less than 50 million yuan
Air China: 392 million yuan to 504 million yuan
Net profit in H1 2013
China Southern Airlines: 339 million yuan
China Eastern Airlines: 763 million yuan
Air China: 1.12 billion yuan