Air China to post loss for first nine months

PUBLISHED : Thursday, 16 October, 2008, 12:00am
UPDATED : Thursday, 16 October, 2008, 12:00am

Air China will post a loss for the first nine months of the year, the airline's first deficit since Sars, as a result of the global financial meltdown, hedging losses and slower yuan appreciation.

The surprise announcement came after China Eastern Airlines Corp, Air China's smaller rival, issued a warning for its nine-month result last Friday.

Air China posted a 1.28 billion yuan (HK$1.45 billion) profit in the first half under mainland accounting standards, meaning its third-quarter deficit will be bigger. That compared with the 2 billion yuan in losses in the first half of 2003 because of the severe acute respiratory syndrome epidemic. The company managed a turnaround for the full year of 2003.

'It caught the market by surprise as the market consensus for Air China's full-year result was a 1.8 billion yuan gain,' said Jim Wong, an analyst at Nomura Securities.

It might be partially because of hedging losses as the global fuel price had now come down to below US$90 per barrel from US$146 in July, Mr Wong added.

Air China has partially hedged its consumption of jet fuel on international routes. When oil prices softened, the fair value of its fuel hedging contracts turned negative.

The slowdown in yuan appreciation has exacerbated the situation. The yuan only appreciated 0.1 per cent in the third quarter compared with more than 6 per cent in the second quarter. The company had posted a 1.9 billion yuan exchange gain in the first half.

It also blamed the loss on a fall in passenger numbers during the Olympics, the global financial crisis and the increase in jet fuel costs.

Although oil prices have dropped nearly 40 per cent in the past two months, Beijing has only adjusted down the domestic jet fuel prices 7 per cent this month, leaving domestic jet fuel prices 30 per cent higher than global prices.

Shares of Air China fell 2.74 per cent to HK$3.20 yesterday.