China Eastern Airlines

China Eastern rebounds to 985m yuan profit

PUBLISHED : Tuesday, 11 August, 2009, 12:00am
UPDATED : Tuesday, 11 August, 2009, 12:00am

China Eastern Airlines Corp, the debt-laden mainland carrier, is back in the black after reporting an interim net profit of 985 million yuan (HK$1.12 billion), thanks to a write-back from fuel hedging losses and a government subsidy.

During the same period last year, the company posted a 212.5 million yuan net loss.

However, Shanghai Airlines, which is shortly to merge with China Eastern, posted 91.29 million yuan in interim net losses because of weaker cargo volumes and falling air ticket prices. In the same period last year, it posted an 8.8 million yuan net profit.

Despite the net profit, the outlook for China Eastern's core business is still bleak.

After stripping out the 2.79 billion yuan write-back on fuel hedging losses and an 877 million yuan civil infrastructure levy refund from the central government, the carrier's core business incurred hefty losses.

Sales dropped 10.2 per cent to 18.24 billion yuan.

While low ticket prices have helped domestic passenger demand to rebound, sales per passenger per mile, or passenger yield, have fallen, making life difficult for mainland airlines.

However,, the largest online travel agent in the mainland, says ticket prices have become firmer since June.

The number of passengers on China Eastern rose 14.79 per cent year on year to 20.78 million in the first half, mainly boosted by a 24 per cent increase in domestic traffic. However, international traffic was down 25.3 per cent from a year earlier because of the global economic slump.

China Eastern said a fall in cargo volume had bottomed out, and the airline posted 6.77 per cent growth in tonnage in June.

Nomura Securities said it did not expect the carrier to have another write-back or levy refund in the second half.

Nomura has predicted that the carrier will make a net profit of 181 million yuan this year after posting a significant loss in the second half. Based on interim earnings, that implies a net loss in the second half of 804 million yuan.

Some analysts are betting that next year's World Expo in Shanghai will stimulate passenger demand for the airline.

Based on past expos and an official estimate of 70 million visitors, China Eastern and Shanghai Airlines could process 10 million more passengers next year, translating into 20 per cent of their combined passenger numbers, Citigroup said in a report.

It said China Eastern and Shanghai Airlines would increase their combined yield by 2.6 per cent next year after completing their merger.

As well as winning a refund of the government levy, China Eastern secured seven billion yuan in aid from the central government during the first half and a 10 billion credit line from government-backed banks.

Shares in China Eastern closed 3.78 per cent higher at HK$2.47 yesterday.

Turbulence ahead

Despite the net profit, the outlook for the airline is not encouraging

In the first half, passenger yields at the airline fell, leaving sales down by: 10.2%