Shares in China Southern Airlines sank yesterday in Hong Kong after the firm's management gave a gloomy forecast for the second half and analysts downgraded the carrier's stock.
Morgan Stanley downgraded the carrier to 'underweight' from 'equal-weight' after the airline reported over the weekend a 97 per cent year-on-year plunge in net profit for the first six months.
The brokerage house said while operating losses had narrowed to 755 million yuan (HK$856.7 million) in the first half from 1.2 billion yuan a year earlier, it was not enough given the strong rebound in the aviation market.
It revised down its earnings forecast for China Southern from a net profit to a net loss of 613 million yuan for the full year and cut its share-price target to HK$1.77 from HK$1.80.
Shares in China Southern, the mainland's largest carrier by fleet size and passenger numbers, dropped as much as 7 per cent before closing 3.94 per cent lower at HK$2.44.
The firm's A shares closed 7.9 per cent lower at 5.26 yuan in Shanghai.
China Southern executives said over the weekend that the outlook for international traffic remained in the doldrums, while domestic demand would be overshadowed by overcapacity in the second half.
The carrier is fully exposed to any increase in global oil prices after it terminated all its fuel hedging contracts in September last year. Beijing has not increased domestic jet fuel prices to match the rise in international prices since the end of July.
The domestic fuel surcharge levied by mainland carriers on passengers has yet to resume, adding to the woes of mainland airlines.
But not all analysts are bearish on the outlook for China Southern.
Citi said domestic airfares might rise 20 per cent year on year in the third quarter from the low levels seen during the 2008 Olympic Games.
In addition to the bottoming out of international passenger demand, revenue growth in the second half should be robust, the brokerage said.
Mainland airlines have reined in a cut-throat price war during the third quarter, the peak season for airlines, leading to an improvement in passenger yield, or sales per seat per kilometre, Kelvin Lau, a transport analyst at Daiwa Securities SMBC, said.
He said it would be more important to watch the shoulder season.
Morgan Stanley expects China Southern to post a full-year net loss of, in yuan: 613m yuan