The strengthening yuan and robust air traffic demand powered China Southern Airlines shares to a 32-month high yesterday.
China Southern, the country's biggest carrier, saw its shares surge 12.16 per cent to HK$5.44 yesterday, its highest level since January 2008. China Eastern Airlines and Air China also rose more than 3 per cent to HK$5.07 and HK$10.94 respectively.
The strength of the yuan is benefiting carriers. It enables China Southern and other mainland airlines to exploit their US dollar costs, in which most of their debts were denominated, Robert Bruce, a transport analyst with CLSA, said. China Southern was particularly highly geared, with 70 per cent of its total debt denominated in dollars, he said.
The yuan yesterday reached its highest point in Shanghai since the government announced a reform of its currency system in 2005.
'Fund managers have started to chase laggards in the aviation sector - and China Southern is one of them,' Kelvin Lau, a transport analyst for Daiwa Capital Markets, said.
China Southern was considered to be the most vulnerable to the challenge of the high-speed train in the country because some 80 per cent of its turnover came from domestic routes, leaving it trading at a valuation below its peers, Lau said.
But the recent rally in the yuan made investors shrug off concerns about the challenge posed by high-speed trains for now, he added.
Air traffic continued to boom last month, according to figures released by China Eastern and Air China.
Passengers carried by China Eastern rose 53.6 per cent year on year to 5.6 million in September, boosted by the World Expo and by the merger with Shanghai Airlines. Cargo volume also rose 31.8 per cent year on year to 129,700 tonnes.
Air China flew 3.9 million passengers last month, up 20 per cent from a year earlier. Cargo volume rose 7.8 per cent to 105,700 tonnes.
China Southern has yet to release its figures, but the airline is also expected to notch up solid increases in traffic.