Profit slump at China Southern; Cathay splurges

PUBLISHED : Wednesday, 11 July, 2012, 12:00am
UPDATED : Wednesday, 11 July, 2012, 12:00am


China Southern Airlines is set to post a net profit of under 1.38 billion yuan (HK$1.69 billion), 50 per cent less than last year, when it releases its interim results next month.

The profit warning, released after the Hong Kong bourse closed yesterday, blamed higher jet fuel prices, exchange rate losses and a slowdown in China's economic growth in the first half for the projected profit slump.

The carrier, which is ranked as Asia's largest airline in both number of aircraft and passengers carried, had already seen a 74.2 per cent drop in net profit to just 319 million yuan in the first quarter. At the same time, operating profit slumped 80 per cent to 324 million yuan, down from 1.63 billion yuan as a result of higher jet fuel and exchange rate losses due to the depreciating yuan against the US dollar. The yuan fell about 1 per cent against the greenback in the first half of this year compared with a 4 per cent rise last year.

China Southern's profit warning came as rival carrier Cathay Pacific Airways said it planned to splash out billions of dollars on new aircraft for delivery from 2018. The new deal covering Airbus A350-1000 aircraft comes two months after Cathay said it was launching a series of cost-cutting measures in the face of higher fuel costs and weaker passenger yields. These included speeding up the retirement of older aircraft, trimming long-haul routes and a hiring freeze and voluntary unpaid leave.

Cathay Pacific said it would buy 10 Airbus A350-1000 twin-jet aircraft, exercising a purchase option it had in 2010 when it ordered 30 A350-900s. The airline said it would also convert part of this order for -900s into a deal for 16 of the larger A350-1000s.

The total list price of the contracts, which is expected to be approved at a board meeting on August 8, is HK$34 billion. Cathay said the actual price paid will be lower following negotiations between airline and Airbus. The airline has separate lease agreements to acquire two extra A350-1000s.

One transport analyst said last night: 'While the airline business has seemingly turned into a bit of an arms race, with jet fuel likely to remain above US$100 per barrel for the foreseeable future, the added efficiency of the new A350-1000 will allow CX to maintain its competitive position along profitable long-haul routes.'

Strategic Access chief David Dodwell said: 'With oil prices stuck at current levels, and global recession deepening ... there's no such thing as optimism in [aviation]. But if new aircraft are fuel efficient and well-tailored to predicted route needs and demand patterns, they can deliver precious competitive advantage.'

In a statement, Cathay Pacific chief John Slosar said: 'The A350-1000 aircraft will bring us world-beating fuel efficiency and environmental friendliness. With this order, Cathay Pacific will have a total of 100 aircraft on order for delivery by 2020, comprising an aggregate investment at list prices of HK$218 billion.'

The A350-1000 will be able to carry 350 passengers in three classes compared with 314 passengers in the -900 model. It will also be able to fly up to 8,400 nautical miles, further than the 8,100 nautical miles for the -900.


The total list price, in HK dollars, of Cathay's new aircraft contracts, which are expected to be approved at an August 8 board meeting