Profits drop at Chinese airlines
▶ Air China warns aviation industry that it still faces challenges
As Air China released its third quarter fiscal report of 2018 on Tuesday, three State-owned airlines all turned in their quarterly performance.
According to their reports, the three giants’ revenues hit nearly 300 billion yuan ($43 billion) in the first three quarters, but their net profit declined, dragged down by a weakening yuan and rising fuel and debt costs.
China Eastern Airlines Corp Ltd, the country’s second-largest carrier by passenger numbers, said net profit dropped to 2.2 billion yuan in the July-September period, from 3.6 billion yuan a year earlier, although revenue rose 13.5 percent to 33.5 billion yuan.
For the first nine months of the year, net profit for China Eastern was down 43.3 percent from a year earlier to 4.5 billion yuan.
In July, China Eastern announced that it would raise its share sale to $2.23 billion to expand its fleet and to replenish working capital. Shanghai-based Juneyao Airlines Co Ltd invested in the State carrier as part of the deal.
China Southern Airlines Co Ltd, the country’s largest carrier by passenger numbers, reported profit of 2.0 billion yuan for the third quarter, down from 4.3 billion yuan in the same period last year. Net profit was down 41 percent for the first nine months of the year at 4.2 billion yuan, although revenue rose 13 percent to 108.9 billion yuan during the period.
Air China, the country’s national carrier, said profit for the third quarter fell to 3.5 billion yuan from 5 billion yuan over the same period last year. Net profit was down 16.2 percent for the first nine months.
Chinese airlines have been hit by rebounding oil prices and a volatile currency, putting earnings under pressure even as they enjoy a strong travel demand.
The yuan has fallen by about 6 percent against the dollar since the start of 2018, raising financing costs for airlines as their fleet expansion plans have been mostly financed by the US dollar-denominated loans.
China Eastern reported 2.2 billion yuan in foreign exchange losses for the first three quarters, as the Chinese currency depreciated against the US dollar.
The airline said in a separate announcement that it plans to issue up to 15.4 billion yuan in corporate bonds to fund aircraft purchases and replenish working capital.
China Southern incurred foreign exchange losses of 2.0 billion yuan due to a drop in the yuan against the US dollar in the nine-month period, compared with a gain of 1.2 billion yuan a year earlier.
In comparison, two medium-sized airlines, Juneyao Airlines and Spring Airlines both realized an increase of revenues and net profit, as the net profit of Spring Airlines increased to 1.41 billion yuan in the third quarter, up by nearly 19 percent than the same period last year, compared with a net profit growth of 15.32 percent to 1.43 billion yuan of Juneyao in the same period.
China’s economy maintained stable growth with continuous improvement. Especially benefitting from the strong demand during the summer holiday, the domestic passenger traffic grew steadily and enthusiasm for outbound travel remained high, Air China said in its fiscal report.
However, the company also warns that the aviation industry is still facing numerous challenges from the increasing exchange rate, rising oil prices and lack of aviation resources.
China is now the world’s secondlargest aviation market, and increasing demand for air travel is expected to ultimately push it past the US, according to media reports.