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Air China

Air China hit hard as yields tumble

Mainland carrier blames competition from budget rivals and high-speed railway as profit drops 32 per cent to miss market forecasts

PUBLISHED : Wednesday, 26 March, 2014, 5:29am
UPDATED : Wednesday, 26 March, 2014, 5:55am

Beijing-based Air China said net profit sank 32 per cent last year to 3.26 billion yuan (HK$4.07 billion) as revenue per passenger slid and air cargo operations bled from soft demand and overcapacity in the industry.

The result was sharply below the market consensus of 4.47 billion yuan compiled by Bloomberg.

"The rapid development of high-speed railway and the evolution of low-cost carriers on the mainland will further intensify competition on domestic routes," Air China said in a filing with the Shanghai Stock Exchange yesterday.

Air China flew 77.6 million passengers last year, up 7.3 per cent year on year, compared with 3.92 per cent growth in 2012.

But passenger revenue dropped 2 per cent to 87.47 billion yuan as sales from domestic flights slid 5 per cent to 59.7 billion yuan.

Flights to Japan and South Korea saw a 15 per cent drop in revenue to 4.4 billion yuan.

The revenue per passenger over a kilometre, or passenger yield, fell 10 per cent to 62 fen from 69 fen a year earlier.

Domestic flights saw the greatest drop in yield among other markets by plunging 13.7 per cent to 63 fen.

The cost of the seat per kilometre dropped 6 per cent to 47 fen.

Long-haul and regional flights served as a buffer. North America routes reported 14 per cent growth in revenue to 6.4 billion yuan. Asia-Pacific and other regions saw revenue rise 18 per cent to 4.6 billion yuan.

An anti-extravagance campaign launched by Beijing at the end of 2012 reduced travel by officials or forced them to fly economy instead of business or first class. The drop in revenue from front-end cabins is a major factors in dampening passenger yields.

Price wars among mainland carriers and competition from high-speed railway also dragged down yields.

Air China Cargo continued to suffer from weak demand and overcapacity in the market. The unit, in which Cathay Pacific Airways has a 49 per cent stake, saw losses of 349 million yuan.

Cargo yield, or the revenue for every tonne per kilometre, dropped to 1.57 yuan from 1.69 yuan.

The carrier ferried 1.46 million tonnes of cargo, down 0.3 per cent on the year.

Jet fuel costs fell 5 per cent to 33.7 billion yuan.

At the end of December last year, the company operated 497 planes with an average age of 6.33 years. The carrier will take delivery of 68 aircraft this year, including 29 Boeing 737s and 17 Airbus 320s.

Shares in Air China yesterday closed 0.83 per cent lower at HK$4.78, in a market that finished 0.52 per cent weaker.

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