Profits plunge at China’s ‘big three’ airlines
China’s three major state-run airlines have predicted a significant downturn in profits for the first half of 2012.
Xinhua reported Beijing-based Air China as saying on Wednesday that it expects profits for January-June 2012 will be less than half the CNY4.04 billion (US$644m) it achieved in the first half of 2011. This follows a similar warning made by China Eastern Airlines earlier in the week. The Shanghai-based carrier said in a statement to the Hong Kong Stock Exchange that its profits are expected to fall 50% or more from the CNY2.45bn generated in the first half of 2011.
Guangzhou-based China Southern Airlines has predicted a similar slump.
The reasons being cited by the ‘big three’ airlines are similar – slowing domestic passenger demand and high fuel costs.
Analysts have said however, that earnings are expected to recover in the second half of the year, especially during the summer travel peak season. Xinhua cited UBS Securities as forecasting that both China Eastern and China Southern can expect an 8% rise in domestic passenger traffic in the second half of the year, while Air China is likely to see 7% growth. Fuel prices are also on the decline, offering some relief to airlines.
The airlines themselves are also confident the situation is not as bad as during the global economic crisis. Liu Shaoyong, Chairman of China Eastern, said earlier this year that “profit margins might shrink from a year earlier… [but] the situation is not supposed to deteriorate to the 2008 levels”.
IATA recently downgraded its full-year 2012 profit forecast for Asia Pacific carriers to US$2.0 billion, down from its previous prediction of US$2.3bn. In line with the Chinese airlines’ forecasts, this is less than half the US$4.9bn profit achieved in 2011, and a quarter of the US$8.0 billion generated in 2010.