Airlines rise on state's vow to lift industry

PUBLISHED : Saturday, 14 July, 2012, 12:00am
UPDATED : Saturday, 14 July, 2012, 12:00am


Shares of mainland airlines soared in Hong Kong yesterday after the central government issued a circular aimed at boosting the aviation industry, predicting a tripling of the mainland's air transport volume by 2020.

Despite some of the airlines having issued profit warnings, airline shares were among the biggest gainers yesterday. Investors were betting the government's support would fuel the industry's growth in the medium to long term, and that falling international oil prices will help airlines in the second half of the year.

Shares of China Southern Airlines, the mainland's largest airline by fleet size, jumped 8.4 per cent to HK$3.74, those of Air China rose 4.6 per cent to HK$4.99, and China Eastern Airlines' rose 6.88 per cent to HK$2.64. Shares of AviChina Industry & Technology, an aircraft and components manufacturing conglomerate, jumped 10.16 per cent, making it one of the day's top gainers. The Hang Seng Index edged up 0.35 per cent.

The State Council's circular said air passenger and freight transport volume would grow 12.2 per cent annually to reach 170 billion tonne-kilometres in 2020, compared with 57.7 billion tonne-kilometres last year. Flight services are projected to reach 89 per cent of the nation's population by 2020, with the number of air passengers hitting 700 million, up from 293 million last year.

Capacity will expand at existing airports and new ones will be built, the document says. It promises more efforts to develop aviation as a new growth sector, and more encouragement for private jet and business jet services. 'By 2020, a safe, convenient and efficient civil aviation system will be in place in China,' it says.

Li Lei, an analyst with the China Securities Company, said: 'The document takes a longer view than the previous one issued by the administration. The industry growth rate it specifies for the next eight years is lower than what we have seen between 2000 and 2010. It's in line with the government's expectations of slower GDP growth.'

Meanwhile, China Eastern Airlines issued a profit warning in a filing with the Shanghai stock exchange yesterday, saying its first-half net profit would fall by more than 50 per cent. It blamed weak passenger and cargo demand as well as fuel costs.

Despite their sterling performance in Hong Kong, the stocks of the top three mainland airlines dropped by between 0.4 and 1.3 per cent in Shanghai yesterday.

Earlier this week, China Southern Airlines said it expected its first-half net profit to fall more than 50 per cent from last year, because of slower economic growth and higher jet fuel prices.

A report by Swiss bank UBS said lower oil prices and a more stable the yuan exchange rate may help mainland airlines in the second half. It expects China Eastern Airlines and China Southern Airlines to post profit increases in the second half, as a result of a significant jump in passenger numbers in the summer and a rise in ticket prices of 4 to 5 per cent.