Fewer passengers hurt earnings at airlines

PUBLISHED : Tuesday, 20 October, 2009, 12:00am
UPDATED : Tuesday, 20 October, 2009, 12:00am

Mainland air traffic growth is showing signs of weakening as an increase in passenger numbers narrows, contributing to a decline in airline earnings last month.

Mainland airlines flew 19.3 million passengers last month, a drop of 14.6 per cent from the 22.6 million passengers in August, according to the Civil Aviation Administration of China (CAAC) website.

Year-on-year passenger growth rate also weakened, to 17.3 per cent from 42 per cent in August and 22 per cent in June.

Net profit at airlines shrank to 160 million yuan (HK$181.65 million) last month from an average 740 million yuan in the preceding eight months. Earnings were 6.1 billion yuan in the first nine months, CAAC said.

Damien Horth, a transport analyst at UBS, said the September figure was a little disappointing even though it was considered one of the traditionally weak months.

China Southern Airlines, the largest mainland airline by passengers, said the slowdown in passenger numbers would continue in the fourth quarter.

'Passenger demand in the fourth quarter would be lower than in the third quarter as it is the low season on the mainland,' company secretary Xie Bin said. 'However, we predict the fourth quarter still will be better off than the same period last year.'

Air China and China Eastern Airlines Corp also reported slowing passenger growth for last month.

Air traffic posted unprecedented growth from June to August, boosted by economic growth, robust domestic demand and the lower base caused by last year's Beijing Olympics.

However, the low-base effect has started to fade as visa restrictions were relaxed after the Olympics.

Nationwide, the load factor, or the percentage of seats sold, decreased to 74.2 per cent last month from 79.9 per cent in August, a sign that carriers might have to use lower ticket prices to lure passengers.

The overhang on ticket prices had already made sales during the eight-day National Day holiday this month lower than expected, Xie said.

'The boost in ticket prices is not as good as we expected during the National Day holiday,' Xie said.

Low-yield holidaymakers accounted for most of the total passenger number, dragging down the average ticket price on a monthly basis, he added.

Analysts said ticket prices for the fourth quarter would be weaker as capacity growth would outstrip passenger demand.

'We expect the passenger yield may come off post the peak-season high,' said Jim Wong, a transport analyst at Nomura Securities.

Over the longer term, yield would depend on the speed of the international traffic recovery, he said.

Big aircraft that have been transferred to the domestic market can be redeployed back to international routes, taking away the excess capacity in domestic market.