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NOVEMBER 2018

Week 44

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Net profits decline at China’s ‘Big Three’airlines

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November 2nd 2018

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The Mainland’s ‘Big Three’ carriers - Air China, China Eastern Airlines and China Southern Airlines – have reported significant drops in net profit for the first nine months of their fiscal years. Read More » Their bottom lines were negatively affected by rising oil prices and the depreciation of the Chinese yuan against the U.S. dollar.

Air China said its net profit for the nine months to September 30 declined 16.2%, to CNY6.9 billion, year-on-year but revenue for the period rose by 12.9% year-on-year, to CNY102.9 billion.

The situation at China Eastern Airlines was similar. The SkyTeam carrier reported a 43.3% decrease net profit for the nine months to September 30, to CNY4.5 billion, also on substantial revenue gains.

The yuan has lost approximately 6% against the U.S dollar this year, which has increased financing costs for airlines with U.S. dollar-denominated loans.

In a separate announcement, China Eastern said the group planned to issue up to CNY15.4 billion in corporate bonds to fund aircraft acquisitions and replenish its working capital.

In Guangzhou, China Southern Airlines has posted a net profit of CNY4.18 billion for the first nine months, down 40.7% year-on-year, despite a 13.3% revenue growth for the period. China Southern, also a SkyTeam member, said its operating costs soared 402% during the nine months to September 30.

Asia’s largest carrier expected to have more than 2,000 aircraft in service by 2035, up from approximately 800 jets at press time. By 2020, China Southern said it would like to have 150 wide bodies in its fleet. The airline now flies 90 A330s, A380s, B777-300ERs and B787s.

“Our fleet expansion aligns with the company’s overall strategy, which is to focus on long-haul markets,” China Southern vice chairman and president, Tan Wan Geng, said in September. “Right now, only 12% of the fleet is wide body aircraft. Once we start our hub at Beijing Daxing, it has potential to go up to 15% as we expand to 1,000 aircraft and establish new long-haul routes,” the China Southern boss said.

China invested more than US$11.7 billion in civil aviation infrastructure last year. Its landmark project is Beijing’s new international airport in Daxing, which will start test operations from October next year.

The airport, on the border of Beijing’s southern Daxing district and the Hebei province city of Langfang, will have a terminal complex of 313,000 square metres and four runways to accommodate 620,000 flights a year. China Southern owns 40% of Beijing Daxing International Airport and plans to base a minimum of 200 aircraft there by 2025.

Once operational, Tan intends for China Southern to launch flights from Daxing to New York, Paris, Sydney and London. Once those routes come online, China Southern will focus on launching routes to Africa and South America from Beijing, particularly to Brazil, Chile and Argentina, Tan said.

The fourth-largest Mainland carrier, Hainan Airlines, saw its operating profit drop 76% during the first nine months of this year, to CNY916 million. The airline’s operating revenue increased 17% over the period, but costs ballooned 26%, to CNY53.5 billion. Hainan said this resulted in a 74% decrease in attributable net profit, to CNY729 million.

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