Shanghai Airlines' profit plummets
By Luo Man and Vincent Lam (China Daily)
Updated: 2005-08-16 08:49

SHANGHAI: A 91 per cent dip in profits announced by Shanghai Airlines yesterday underlined losses across the industry hit by record-high oil prices.

Airline profits plummeted in the first half of the year while oil prices continued to inch upwards. The loss was recorded despite a big increase in sales.

Oil prices are not expected to go down in time for carriers such as Shanghai Airlines to turn the situation around this year. China's fifth largest carrier saw profits for the first half of 2005 plunge 91 per cent. Investors took the hit, with net income down 13.35 million yuan (US$1.65 million) or 0.012 yuan per share, down from 145.3 million yuan or 0.134 yuan a share in 2004.

Shanghai Airlines announced the results in a statement to the Shanghai Stock Exchange yesterday. The loss occurred despite a 21 per cent growth in sales to 3.53 billion yuan.

Xu Junmin, secretary of the board of directors at Shanghai Airlines, said there is little the airline can do to combat the high price of fuel.

Almost every Chinese and Asian carrier has taken a hit as fuel prices continue their upward climb.

Combined, Chinese airlines saw losses of 340 million yuan in the first five months of 2005.

High oil prices have slashed the 2005 earnings forecast for China Eastern Airlines (CEA) by 78 per cent to 40 million yuan, according to a report by investment bankers Lehman Brothers. The 2006 and 2007 estimates have been chopped by 62 per cent and 53 per cent to 33 million yuan and 50 million yuan respectively.

Lehman Brothers said it has lowered earning estimates for the airline as it expected 2005 prices to hover around US$60 per barrel while the 2006 and 2007 forecasts are US$55 and US$47 per barrel.

Meanwhile in a silver lining for some airlines, Smith Barney Citigroup Research said in a research report that recent changes in the price of the yuan will benefit the profitability of mainland airlines as most of the income for Air China and China Eastern Airlines comes from international flights.

China Southern Airlines is less likely to benefit from moves in the mainland's currency because most of its revenue is yuan-denominated.

Credit Suisse First Boston slashed the net profit forecast of China Eastern by 41 per cent and the target price for the stock by 15 per cent to HK$1.65, citing the record high oil prices as the foremost worrying factor.

HSBC Securities also reduced the 2005 earnings estimate for CEA by 49 per cent to 319 million yuan after the first quarter net profits plunged by 72.6 per cent to 50.43 million yuan in March.

Shares of the stock fell from HK$1.45 to close at HK$1.27 yesterday, closing the three-month period.

The lower profits are not unexpected. Shanghai airlines said on July 5 that first-half profits were likely down as much as 50 per cent while operating costs rose by 31 per cent to 2.93 billion yuan. (US$1=8.1 yuan; US$1=HK$7.8)