Key airlines warn on H1 profits

The three major Chinese airlines - Air China, China Southern and China Eastern - have forecast a sharp decline in profits in the first half of year amid the country's economic slowdown.

Air China Ltd, the world's second-biggest carrier by market value, said first-half profits may decrease more than 50 percent due to sluggish travel demand and higher fuel costs.

The carrier, which had a net profit of 4.06 billion yuan ($637 million) in the first half of 2011, attributed the drop to the demand slowdown in China's aviation market, ongoing depressed demand in the international market and the increase of jet fuel prices.

China's GDP growth fell to 7.6 percent year-on-year in the second quarter, the weakest figure in three years.

"The aviation industry is reflecting the slowdown of the Chinese economy," said Li Xiaojin, a professor of the Economic and Management School at the Tianjin-based China Aviation University.

But the main reason for the lackluster figures is the loss of income due to the global economic downturn, Li said.

Rising fuel prices also increased the airlines' costs by about 20 percent, he estimated.

In addition, exchange losses due to the depreciation of the yuan against the US dollar resulted in lower foreign exchange gains in the first half of 2012 compared to the same period last year.

The yuan fell 0.88 percent from April through June against the US dollar, the biggest quarterly decline since the dollar peg ended in 2005.

Meanwhile, high-speed trains, which are developing fast in China, and several long-haul train lines that opened this year also took passengers away from airlines, Li said.

Last week, China Southern Airlines Co Ltd and China Eastern Airlines Co Ltd also released estimates for the first half of the year. The companies said net profit will decline at least 50 percent during the period.

"The situation is even worse than it was during the 2008 financial crisis," Wang Changshun, Air China's chairman, said earlier.

However, some industry insiders are optimistic.

"I believe that the second half of the year will be better," said Liu Shaoyong, president and chairman of China Eastern Airlines.

Airlines usually register stronger figures in the second half due to the summer vacations and end of the year busy seasons, Li said.

Fuel prices are also expected to be stable or even to decrease in the second half, which will be positive for the industry, he added.

Li said that even with profits declining more than 50 percent, Chinese airlines are still doing better than their global peers.

"The global aviation industry suffered more with the economic depression than Chinese airlines," he said.

But whether the situation improves in the second half will also depend on the global economic recovery, he added.

wangwen@chinadaily.com.cn