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State-owned carriers report lower net profit in first half

By Zhu Wenqian | China Daily | Updated: 2019-09-04 10:49
China Eastern's A350-900 plane prepares to land on Dec 1, 2018. [Photo/VCG]

State-owned Chinese carriers posted higher revenues in the first half of the year although net profits slipped because of the slower pace of travel demand along with the grounding of nearly 100 troubled B737 MAX aircraft and the postponed delivery of new jets.

From January to June, Air China Ltd recorded 65.31 billion yuan($9.1 billion) in sales revenue, up 1.67 percent year-on-year. Its net profit reached 3.14 billion yuan, down 9.49 percent over the same period a year ago, its earnings report said.

Shanghai-based China Eastern Airlines saw its sales revenue in the first half reach 58.78 billion yuan, rising 8.02 percent year-on-year. Its net profit of 1.94 billion yuan in the period represents a fall of 14.89 percent year-on-year, the company said.

Guangzhou-based China Southern Airlines, China's largest carrier by passenger traffic, reported sales revenue of 72.94 billion yuan, increasing 7.97 percent year-on-year. Its operations yielded a net profit of 1.69 billion yuan, a 21.85 percent drop year-on-year, the airline said.

The three State-owned carriers all said that fuel costs are their biggest expenditure. On average, oil accounted for about 32 percent of the total costs in the first half.

The performance of airline firms is usually affected by external factors like oil prices and exchange rates. In the first half, those two factors did not fluctuate much, and the major factor was the main business of carriers, an industry expert said.

"With an overall downward trend in macroeconomic demand in the first half, business travel demand dropped, and the freight business has seen negative growth," said Lin Zhijie, an aviation industry analyst.

"The depreciation of the yuan against the US dollar, Sino-US trade tensions, the sluggish macro economy, the transfer of some airlines to the new Beijing Daxing International Airport, and the grounding of the B737 MAX jets are among the factors expected to contribute to a challenging second half for the airline companies," he added.

Chinese airlines, the largest operator of the MAX jets, flew 96 out of the 371 MAX jets in service worldwide prior to their grounding due to two fatal crashes. The losses from the grounding can be as high as 1 billion yuan based on the scale of the grounding and operational capacity of the three airlines, industry experts estimated.

By Sept 30, China Eastern and China Southern will move to the new Daxing airport, which is located about 60 kilometers south of the city center. The main business of Air China will remain at the current Beijing Capital International Airport.

Separately, the three State-owned carriers said in statements on Aug 30 that they have each signed an agreement with the Commercial Aircraft Corp of China on the purchase of 35 ARJ21 aircraft, China's first domestically manufactured regional passenger jetliner.

The catalog list price of an ARJ21-700 plane is about $38 million, which includes the cost of the fuselage and engine, COMAC said. The total value of 105 aircraft is about $4 billion.

The ARJ21 had two customers, Chengdu Airlines and Genghis Khan Airlines, which is based in the Inner Mongolia autonomous region. They mainly fly regional routes in smaller cities.

"The purchase of the ARJ21 by the three major State-owned airlines indicates the aircraft will enter a new stage of operation in an all-round way. The airlines are expected to use the aircraft on regional routes with smaller customer flows, and provide more convenience for travelers from third-tier and fourth-tier cities," Lin said.

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