China Southern profit dives 97pc on sales slump
China Southern Airlines, the largest mainland carrier by fleet size and passenger numbers, has warned that the operating environment in the second half of the year will remain challenging, after it posted a 97 per cent dip in net profit in the first half.
Profit at the Guangzhou-based airline dropped to 25 million yuan (HK$28.37 million), or 0.4 fen per share, from 818 million yuan in earnings, or 12.5 fen per share, a year earlier.
Total sales dropped 9.1 per cent to 24.3 billion yuan, with passenger sales down 7.7 per cent to 22.4 billion yuan while cargo sales dropped 37.2 per cent to 1.2 billion yuan. Helping to stem the impact of lower revenues was a 36 per cent fall in fuel costs, which account for 27 per cent of operating costs.
'The international aviation market demand may still be in the doldrums while the domestic civil aviation industry will be confronted with challenges amid the rapidly growing capacity and the spread of the flu epidemic,' China Southern said in an announcement filed with the Hong Kong stock exchange yesterday.
It predicts the overall international oil price will continue to show an upward trend for the rest of the year.
All of the Big Three mainland carriers managed to make a profit in the first half, shrugging aside slowing demand that saw many international airlines plunge into the red.
Air China, the smaller rival to China Southern, earlier reported net profit of 2.88 billion yuan in the first half, up 155 per cent on the same period last year. China Eastern Airlines, which is undergoing a consolidation with Shanghai Airlines, returned a net profit of 987.6 million in the first half, versus a loss last year, with the result boosted mainly by fuel-hedging gains.
Like its rivals on the mainland, China Southern received a stimulatory boost from the civil infrastructure fund. Its 1.3 billion yuan injection will not continue in the second half.
The airline had no fuel-hedging gain booked in the first half, as opposed to the mammoth gain booked by China Eastern and Air China in the period. This was because China Southern had terminated all of its fuel-hedging contracts in September.
Robust domestic air traffic demand on the mainland remains the key to the earnings growth reported by mainland carriers. Domestic passenger numbers grew 16.4 per cent year on year in the first half due to cheap airfares and a low-base effect last year.
China Southern carried 31 million passengers in the first six months, up 11 per cent from a year earlier. An increase in the number of domestic passengers in the first half offset a 15 per cent decrease in international passenger numbers and an 8.4 per cent dip in the number of passengers flying on Hong Kong-mainland routes.
'The passenger traffic in China Southern was tepid in the first five months due to the slowing of the export-driven Pearl River Delta economy,' a Citigroup report said.
The outbreak of swine flu also dampened travel sentiment in May, it noted, especially in the carrier's hub in the delta region. But, the region's travel had started to revive since mid-June and the carrier was poised to embrace an imminent hike in airfares, it added.
All Big Three carriers on mainland posted a profit in the first half
Earnings at the Guangzhou-based airline dropped to, in yuan: 25m yuan