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Airlines show early signs of health
By Wang Ying (China Daily)
Updated: 2009-05-05 07:51

 Airlines show early signs of health

China Xinhua Airlines and China Eastern passenger jets on the runway at Beijing Capital International Airport. [Xu Jingxing]

After posting a combined loss of nearly 30 billion yuan in 2008, major airlines in the country are showing early indications of a recovery, as seen from their 2009 first-quarter results.

Of course, how they fare during the year could be affected by various factors, including the economic downturn that could further depress the travel market. Airline companies also have huge projected payments for new aircraft they ordered over the past couple of years.

But, for now at least, the worst seems to be over.

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During the first quarter of this year, major carriers made a total profit of 1.3 billion yuan. Although Air China had reported a net loss of 9.15 billion yuan in 2008, it bounced back into the black with a 981 million yuan profit in Q1 2009, down only a slight 5.68 percent from a year ago. The flag carrier's earning per share (EPS) was 0.08 yuan.

For China Southern Airlines, first quarter saw a net profit of 222 million yuan, at an EPS of 0.03 yuan.

Even the moribund China Eastern managed to eke out a modest gain of 40.10 million yuan in the 2009 first quarter.

Shanghai Airlines, China Eastern's local rival, reported a net profit of 26.27 million yuan, with an EPS of 0.024 yuan. In contrast, the 2009 first quarter earnings of the relatively high-flying Hainan Airlines plunged by 88.9 percent from a year ago, to 31.82 million yuan.

Passenger numbers for all airlines increased by 14.6 percent in the first three months, and average seat utilization per kilometer was 75.9 percent, up 0.5 percent from a year earlier, according to Yang Guoqing, Deputy Director-General, Civil Aviation Administration of China (CAAC).

"Thanks to CAAC's tax reduction measures, the cash-strapped carriers, whose profits were falling and who had run up losses on bad derivative bets, had a breather in Q1 of 2009," said Li Lei, an analyst at CITIC China Securities.

CAAC, the governing body of Chinese airlines, had rolled out supportive measures and infused cash directly into China Eastern and China Southern in an effort to bail out the State-owned carriers, last year.

A cut in jet fuel prices by 460 yuan per metric ton ever since March, also helped. "The lower fuel cost and the recent air ticket price hikes will put airlines in a better position," said Zhang Qi, industry analyst with Dongfang Securities.

Li Pan, an analyst with BOC International, said airlines could expect to do better in the second quarter as long as the price of domestic jet fuel was at a low level, .

The Chinese carriers are also entering their best season of the year, and a better performance over the next two quarters is almost certain. "An aggregate industry profit is very likely in 2009," Li said.

Share prices of major airlines slid for six consecutive days before moving up a tad during the last two trading days before the May Day holiday.

Fears of a swine flu outbreak undermined the performance of domestic airlines. Air China slid 16.32 percent in six trading days from 7.29 apiece on April 20 to 6.10 on April 28. China Southern fell 1.02 yuan apiece in six trading days to 5.31 yuan from April 20. China Eastern shrank by 19.89 percent, from 5.68 yuan per share on April 20 to 4.55 yuan on April 28. Shanghai Airlines dropped from 4.98 yuan two weeks ago to 4.59 yuan apiece. Hainan Airlines followed a similar trend by tumbling 21.08 percent in just five trading days, down to 5.13 yuan per share.

Li Lei of CITIC Securities said the sharp fall in share prices would not last long. On Thursday and Friday last week, airline shares started climbing. Led by Air China's 9.5 percent surge in two trading days, China Eastern jumped by more than 8 percent, and Hainan Airlines, China Southern and Shanghai Airlines gained 4.09 percent, 2.82 percent and 5.01 percent.

"However, we will keep a close eye on the development of the flu, which has the potential to impact passenger volume in the short term," said Li Pan of BOC International.


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