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Air China's net profit declines

Publication Date : 27-03-2014

 

Air China Ltd, the flag carrier of China, saw a 32.41 per cent year-on-year reduction in its net profit in 2013, and this year may be tougher for Chinese carriers, analysts forecast.

Air China earned 3.3 billion yuan (US$535 million) net profit and operation revenue of 97.63 billion yuan - a 2.22 per cent decline - in 2013, according to the carrier's annual report released on Wednesday.

It is the third consecutive year that the carrier has reported reduced profits. The decline was attributed to China's slowed economic growth, the global economic recession and a weak cargo market.

Air China's passenger yield decreased by 10.39 per cent to 0.62 yuan in 2013, which directly led to the profit decline, although both passenger numbers and load volume increased slightly in 2013.

Chen Xin, an analyst with UBS Securities LLC, estimated the airline's ticket price dropped about 8 per cent in 2013 from the previous year.

In addition, because of anti-corruption regulations released by the central government, high-end demand for air traffic decreased in 2013.

Air China said in its report that the sales of its business and first-class seats increased only 7 per cent in 2013 from 2012, but the rise had been over 10 per cent in past years, analysts said.

"Other Chinese carriers also met the same problem as Air China, and their business will not be any better than Air China's," said Li Lei, a civil aviation analyst with China Minzu Securities Co.

In contrast to State-owned airlines, Hainan Airlines Co Ltd, the fourth-largest carrier in China, saw a 9.2 per cent profit rise in 2013, despite the industry being gloomy.

"The passenger structure of Hainan Airlines is different from others in that it operates many routes to tourist destinations," Li said.

Networks covering smaller cities, rather than big cities, also provided faster growth for the airline, he added.

However, China's civil aviation industry is preparing for a tougher year.

"The aviation industry still needs to face some challenges, including intensifying competition, dwindling resources and rising operating costs," said Cai Jianjiang, chairman of Air China.

The price of jet fuel will be a main risk for carriers, because the global economy is still recovering and it will not drop.

The International Air Transport Association also revised downward its industry profit outlook for 2014 from its previous forecast of $19.7 billion to $18.7 billion because of the higher oil prices.

Chinese carriers' exchange income might also be negative, because the renminbi depreciated in the first quarter of 2014, Li said. In 2013, the renminbi appreciation contributed greatly to Chinese carriers' income.

Chinese airlines lost 700 million yuan through exchange rates in February, while they earned 100 million yuan exchange income in the same month a year earlier.

 

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