China Eastern Airlines

China Eastern warns of difficult challenges ahead

PUBLISHED : Friday, 01 April, 2011, 12:00am
UPDATED : Friday, 01 April, 2011, 12:00am

China Eastern Airlines said yesterday that investors should not expect this year's profits to surge as they did last year, warning that conditions are making life more difficult for mainland airlines.

The airline's attributable profit last year soared to 4.96 billion yuan (HK$5.9 billion) from 168.8 million yuan in 2009.

The jump was largely due to its acquisition of Shanghai Airlines, which contributed nearly a quarter of China Eastern's 73.8 billion yuan in revenue.

China Eastern chairman Liu Shaoyong (pictured) said the sector faced challenges this year in the form of spiralling fuel prices and some impact from Japan's earthquake. But he said the integration of the Yangtze River Delta and the development of western China would continue to boost demand.

'People may stop going to Japan, but they just switch destinations to other places like Hong Kong and Macau,' Liu said.

The earthquake and subsequent nuclear crisis had lowered passenger traffic, but Japan represented only about five per cent of the airline's business, he said.

And while high-speed rail presented challenges, the group's chief executive, Ma Xulun, said it also brought opportunities. '[High-speed rail] may be disastrous for flights that are less than 800 km, but for those above 1,500 km, there's basically no effect. It speeds up urbanisation and, through co-operation, they could feed us passengers for international flights.'

More than a year after a high-speed rail service linked Nanjing to Wuhan and shortened the trip to three hours from 10 hours, the airline had phased out its Nanjing-Wuhan service, it said.

Liu said the airline would continue to expand capacity by eight to 10 per cent a year, adding at least 25 aircraft to its fleet of 355 this year and doubling capital spending to 16.7 billion yuan.

The airline's chief financial officer Wu Yongliang said that for every 0.25 per cent rise in the interest rate, the company's debt servicing costs grew 150 million yuan, although every one per cent appreciation of the yuan against the US dollar brought in 399 million yuan in earnings.

Liu said the European Union's planned new cap on carbon emissions for next year would add 150 million yuan to the airline's costs, especially as it planned to boost its existing European routes and add a Shanghai-Hamburg service this year.

Liu said the cap could cost mainland airlines 700 million yuan next year and 3.2 billion yuan by 2020 if they failed to reach consensus with the EU.

The company did not declare a dividend. Its share price closed 0.664 per cent lower at HK$2.99.