Air China seeks deals as fuel cuts 15pc off earnings
Air China, whose profit dropped 15 per cent in the first half, said consolidation in the industry would provide it with new opportunities as airlines faced strong headwinds.
'We observe that mergers and acquisitions are taking place among international airlines, which will result in a changing landscape of the industry,' said Air China's head of investor relations yesterday. 'Some opportunities will come out amid the changes.'
Net profit at the nation's most profitable carrier dropped to 1.24 billion yuan (HK$1.41 billion) for the six months to June from 1.48 billion yuan a year earlier.
Air China attributed the decline to rising fuel costs and losses from Cathay Pacific Airways, of which it owns 17.5 per cent.
Cathay reported a net loss of HK$663 million in the first half on rising oil prices and a US$60 million fine to settle a price-fixing investigation by the United States government.
Fuel costs accounted for about 40 per cent of Air China's operating costs, increasing 44 per cent year on year to 8,230 yuan per tonne in June.
Air China's profit margin decreased 7.2 percentage points to 10.76 per cent on high fuel costs.
In June, Beijing raised domestic in-plane fuel prices by 1,500 yuan per tonne in an effort to close the gap between international jet fuel prices and domestic rates.
China National Fuel Group, the country's sole jet fuel wholesaler, further increased prices by 720 yuan per tonne last month, pushing up the price of jet fuel to 8,200 yuan per tonne, up 44 per cent from July last year.
Chinese airlines have increased passenger fuel surcharges on international and domestic flights, but those surcharges could only offset about 60 per cent of the rise in fuel costs.
The carrier was also hurt by a decline in traffic. Passenger figures have softened since March due to stricter air traffic controls at Beijing Capital International Airport.
Passenger demand abruptly weakened in May after the Sichuan earthquake halted tourist traffic in the province, which is one of Air China's key hubs.
The carrier flew 16.5 million passengers in the first half, down 0.8 per cent from a year earlier. Cargo volume dropped 0.5 per cent to 454,700 tonnes.
'Traffic demand to and from China will not recover until the fourth quarter,' said Kelvin Lau, a transport analyst at Daiwa Institute of Research.
Thanks to the yuan's appreciation, the company posted 1.9 billion yuan in exchange gains in the first half, up 124 per cent.
Shares in the carrier rose 4.8 per cent yesterday to HK$3.93.
