Companies

Air China H2 net jumps on air travel

(Agencies)
Updated: 2011-03-30 13:20

BEIJING - Air China Ltd posted a more than three-fold rise in second half earnings on Tuesday thanks to brisk air travel in the world's second-largest economy and a merger deal, Reuters reported.

Leisure and business travel will stay strong this year, but high-flying Chinese carriers might have to brace for strong headwinds now that oil prices have topped $100 per barrel.

Several industry executives, including Li Jun, deputy general manager of China Eastern Airlines, have expressed concerns about oil prices.

"The fuel rate has been showing an uptrend lately and that will definitely weigh on our costs," he told reporters earlier this month.

"We will continue to be profitable this year, no doubt about that. But we won't be making as much this year and our pressure is higher."

In a stock exchange filing, Air China said it remained optimistic on steady growth of the air travel market in 2011, but warned about a slew of potential risks, from rising fuel prices to the expansion of China's high-speed railway net work.

China Southern's 2010 net profit surged to 5.8 billion yuan from 330 million a year earlier under international standards, while China Eastern had also projected strong earnings for 2010, due in part to strong air travel.

Air China's net income for the year jumped 147 percent to 12 billion yuan after buying control of Shenzhen Airlines.

Its earnings for the second half were 7.39 billion yuan, up from 1.98 billion a year earlier, beating the consensus forecast of 6.7 billion from 18 analysts polled by Thomson Reuters. Turnover increased 62.6 percent to 78.2 billion yuan.

The results came after its partner, Cathay Pacific Airways posted an 86 percent rise in its second-half profit to HK$7.2 billion, its best-ever six-month profit.

Before the results, Air China's Shanghai-traded shares closed the day down 0.27 percent at 11.3 yuan, outperforming a 0.87 percent slip of the benchmark index. It has lost 17.7 percent since the end of last year, lagging a 5.3 percent gain of the market.

Full costs

Jet fuel usually accounts for 40 percent of the operating costs of Chinese airlines, which like their global peers, have weathered ups and downs of fuel prices in the past years.

With no end in sight for UN-backed military action against Libyan leader Muammar Gaddafi and amid wider unrest in the Middle East, oil prices will continue to weigh on airlines worldwide.

The International Air Transport Association said earlier in March it expected net profit at global airlines to be $8.6 billion this year, down from the $9.1 billion forecast in December.

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To help shield themselves from the latest round of oil price increases, Chinese carriers raised fuel surcharges late last month.

"The move will help offset the rising fuel costs, but oil prices could still be a drag if they keep rising," said Yu Nan, an analyst with Haitong Securities.

While acknowledging the cost pressures, Air China's chairman, Kong Dong, put a positive spin on the situation.

"We will be doing fine as long as our passenger volume keeps growing," Kong told Reuters earlier in March.

"Besides, 2011 will the first time Shenzhen Air's full-year performance will be reflected in Air China's annual results,"

Shenzhen Air results were consolidated into Air China's book in May 2010 after an equity deal, Kong said, adding he expected a 12 percent growth in the carrier's passenger volume in 2011.