Hard landing for mainland China airlines
Mainland airlines faced turbulence in the first quarter, with China Eastern Airlines yesterday going from a profit to a loss and China Southern Airlines stocks taking a hammering after the company barely managed to stay in the black.
China Eastern reported last night a loss of 132 million yuan (HK$164.5 million) in the quarter, compared with a net profit of 266 million yuan in the same period last year.
It cited a plunge in ticket sales amid a sluggish global economy and adverse geopolitical events that affected its income in markets with higher profit margins. Appreciation of the yuan and an investment loss in its associate Jetstar Hong Kong deepened the losses, it said.
Shares in China Southern Airlines dropped 4 per cent after the company reported on Thursday that earnings plummeted in the first quarter because of poor demand on the mainland following the growing popularity of high-speed railway and Beijing's crackdown on corruption.
The airline's shares fell up to 5.6 per cent before closing at HK$4.08 yesterday.
China Southern's net profit plunged 82 per cent to 57 million yuan. The company would have been in the red if not for foreign exchange gains, which are likely to exceed 280 million yuan in the first quarter as a result of the yuan's appreciation.
"The unsatisfactory result was due to a lower-than-expected traffic demand during the Lunar New Year holiday," said a senior executive at the carrier, who asked not to be named.
Many travellers took to high-speed trains while some used the highways as the government waived tolls during the weeklong holiday.
"The demand for business and first-class seats plummeted in light of Beijing's anti-corruption push," the executive added, but did not elaborate.
The airline reported 23.58 billion yuan in sales for the quarter, down 0.4 per cent down from a year earlier, while passenger volume rose 6.2 per cent.
"The sharp drop in profit was a consequence of the airline's strategy to cut airfare to stimulate the demand of price-sensitive travellers," a Credit Suisse report said.
Passenger yield is a measure of average fare paid per mile per passenger.
Credit Suisse expects China Southern's earnings to rebound in the second quarter as fuel prices fall, the yuan strengthens, and given a lower base last year. Jet fuel prices are down 17 per cent on average from the highs seen in February.
Air China, however, bucked the trend with a first-quarter net profit increase of 4.2 per cent year on year to 249 million yuan as a result of better cost control.