Rising costs land airline with loss of 955m yuan
China Eastern's maintenance charges double while fuel costs surge 80pc
China Eastern Airlines Corp, the country's third-largest carrier, reported a 955 million yuan loss for the first quarter caused by a doubling of its maintenance bill and an 80 per cent rise in fuel costs.
The results, prepared in accordance with the mainland's accounting standards, compare with a 50.4 million yuan profit for the same period last year.
'We scheduled the line maintenance a bit earlier to book it in the first quarter,' a China Eastern spokesman said without giving details. He said that maintenance fees increased about 400 million yuan to nearly 600 million yuan during the period.
'It is possible that the company booked most of its maintenance costs in the first quarter to make more room for any upside surprises in the second quarter,' said Elisa Liu Hongge, an analyst with Fitch Aviation.
She said that apart from maintenance costs, administration and sales and marketing expenses had also surged.
Administration costs increased 63 per cent to 400 million yuan while operating expenses, mainly attributed to sales and marketing costs, rose 50 per cent to 500 million yuan.
A fund manager from a European investment house said the result was worse than expected.
'The company may want to manipulate market expectations by suggesting that the worst was over,' he said.
Like China Southern Airlines and Air China, China Eastern has to pay about 25 per cent more for domestic jet fuel than global prices, a restriction that almost tripled the fuel costs of the nation's carriers between 2000 and last year.
The combined net income last year of China's state-owned airlines slumped 68 per cent to 1.65 billion yuan.
Beijing raised the price of aviation fuel four times last year. The retail price of fuel used on international flights is 5,710 yuan a tonne.
Fuel used on domestic flights was raised to 5,520 yuan a tonne on March 26.
In the reporting period, China Eastern's main operation costs increased 80 per cent to 7.25 billion yuan.
Sales from main operations rose 56 per cent to 7.5 billion yuan.
Meanwhile, the company completed an aggregate of 1,553 million tonne-kilometres in traffic turnover, an increase of 50 per cent over the year.
The number of passengers increased 98 per cent to eight million, while the volume of cargo was up 27 per cent to 201,000 tonnes.
Ms Liu said China Eastern had been generating negative free cash flow over the past three years mainly due to the large cash investment to boost the size of its fleet.
This raised concerns that expansion, financed by fresh debt, could push up the carrier's gearing over the next two years, she said.
Finance costs at the airline over the last quarter were up 37 per cent to 265 million yuan.
