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SEPTEMBER 2017

Week 36

News

Profits down at ‘Big Three’ Mainland carriers as costs soar and yields slip

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September 1st 2017

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China’s ‘Big Three’ state-controlled carriers – Air China, China Eastern Airlines and China Southern Airlines – are under pressure to cut costs and improve yields, but unlike Cathay Pacific Airways and Singapore Airlines, they have made money this year. Read More »

Asia’s largest airline, Guangzhou-headquartered China Southern Airlines, was the first of the gang of three to publish its first-half performance this week.

China Southern’s net profit fell 11.6% for the first six months to June 30, to 2.77 billion yuan (US$420 million), although its operating revenue increased 11.5%, to 60.5 billion yuan.

China Southern’s passenger yield dropped 2% during the period, to 0.48 yuan. At 7.5%, the yield decline was strongest on the airline’s international services. Freight yields increased by 13.9% on the back of a global cargo recovery.

China Southern’s costs ballooned during the first half, particularly for fuel and route launch expenses, but the outgoings were offset, to a degree, by foreign exchange gains of 561 million yuan. The airline forecast Chinese outbound passengers would exceed 140 million in the second half of 2017, a year-on-year increase of 14.8%.

In the first half of this year, China Southern faced a “complex external environment of great downward pressure on the domestic economy, a substantial increase in the oil price over the same months a year ago and increasing competition from high-speed railway, said China Southern secretary, Xie Bing.

At flag carrier Air China the first-half ended “satisfactorily” given the increasingly competitive market and the poor performance of its investment in Cathay Pacific, the airline said Wednesday.

Air China posted a 3.92 billion yuan (US$594 million) net profit in the January to June period, up 3.3% from 3.79 billion yuan in the corresponding year-ago period.

"Despite the influences of unfavourable factors including the oil price rebound, the group still achieved satisfactory results," Air China said. Jet fuel costs surged 40.1% in the first half, the Star Alliance member said, eroding operating revenue gains of 8.8%.

Air China recorded a 3.2% yield slippage on international routes in the first half of the year, but this was balanced by strong gains in its domestic and regional (Hong Kong, Macau, Taiwan) network, resulting in an overall yield increase of 1.4%.

In its investor relations presentation, Air China pointed towards an improved uptake of its premium class offerings. In the reported six months, revenue from premium class travel grew 23% on domestic routes and 8% on international services. Premium class loads improved 9% and 8%, respectively, during the period.

In 2017, Air China will add 57 aircraft to its fleet, including six A330s, an A350, three B777-300ERs and six B787-9s. Next year, five A350s will be among the 49 additional jets that will arrive at the carrier. Sixty one more aircraft will join the Beijing-headquartered fleet in 2019.

At China Eastern Airlines, first-half profit jumped 34.5%, to 4.34 billion yuan (US$660 million), a result boosted by the 1.9 billion yuan sale of its cargo unit. The airline’s operating expenses ballooned by 11.7%, on a 45% jump in fuel costs. China Eastern’s international passenger yield decreased 1.1% but its domestic yield improved 1.5%.

“The international crude oil prices have increased significantly from a lower comparison base in the same period last year,” China Eastern said, and added that cutthroat competition resulted in a drop in revenue from its international routes, despite a 10% boost in operating revenue.

In July, China Eastern said it would acquire a 10% stake in Air France-KLM for about EUR375 million as it moves to expand its European network.

China Eastern, a SkyTeam member like China Southern, will add 30 B737s, 15 A320 family jets, four A330s and a B777 to its fleet this year. In 2018, 67 more aircraft, including the first two A350s, will arrive at Air China followed by 74 new jetliners in 2019.

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