Mainland carriers told to improve profitability
A senior mainland government official yesterday reminded the country's airlines that they were in business to make money.
'Airline mergers are company moves, not government moves,' said Li Rongrong, head of the State-Owned Assets Supervision and Administration Commission, at a ceremony in Beijing to mark China Southern Airlines' entry into SkyTeam, one of the big three airline alliances. 'I just want them to report more profit.'
His comments come at a time when mainland airlines are in a dogfight for market position.
Air China, the country's most profitable airline, is seeking to beef up its fleet and market share to fend off competition from international carriers when Beijing allows more US airlines to fly to the mainland.
In the third quarter, Air China posted a 93 per cent year-on-year increase in net profit to 2.18 billion yuan, excluding one-off gains from its disposal of a stake in Hong Kong Dragon Airlines last year.
China Southern posted a 49 per cent rise in net third-quarter profit to 1.88 billion yuan, while China Eastern said earnings rose 98.67 per cent to 976.5 million yuan. But adjusting for yuan appreciation, which effectively reduces the impact of their US dollar loans, China Southern and China Eastern saw operating deficits.
'It is hard to accept when the economy is in such good shape - but those two carriers are still performing so badly,' said Kelvin Lau, an aviation analyst at Daiwa Institute of Research.
He said mainland airlines might perform better when Beijing implemented its long-awaited policy of reducing aircraft import tax.
At yesterday's ceremony, China Southern chief financial officer Xu Jiebo said the airline was unlikely to make a profit in the fourth quarter because foreign exchange gains would probably not cover its operating loss.
Winter is considered a low season for air travel, and high oil costs are making life even tougher by pushing up jet fuel costs. China Southern posted a 1.86 billion yuan loss in the fourth quarter of last year.
The Guangzhou-based carrier flew 15 per cent more passengers in the first 10 months of this year than in the same period last year, boosted by the mainland's strong economic growth.
China Southern's entry into SkyTeam gives it access to 791 destinations in 162 countries served by the 10-member grouping that includes Air France, Continental Airlines and Korean Air.
China Southern plans to add five overseas destinations including Newark, New Jersey and Moscow by the end of 2009. It has also placed orders for 110 aircraft - 80 Boeing 737s, 20 Airbus 320s and 10 A330s - that will expand its fleet 43 per cent by 2013.
Air China is to join Star Alliance, the largest grouping, by the end of this year.
