China Eastern Airlines Corp posted surprisingly strong first-quarter results yesterday, indicating it was benefiting from the merger with Shanghai Airlines and the upswing in travel demand on both domestic and international routes. The airline posted 770 million yuan (HK$874 million) in net profit in the quarter, compared with 40 million yuan a year ago. It posted hefty losses in 2008. Stripping off the 463 million yuan in fair-value gains from fuel-hedging contracts, the underlying business registered 307 million yuan in profit, its first operating profit since 2007. China Eastern said it expected passenger and cargo volume will jump about 50 per cent this year from 2009, on a surge in passenger demand from the Shanghai World Expo and the merger with Shanghai Air since January. It said passenger volume would grow to 67 million in the year from 44 million and estimated cargo volume would increase 49 per cent to 1.4 million tonnes. Debt-laden China Eastern hopes to lower its debt level to below 80 per cent through potential share sales to strategic investors. 'We are open to engage in talks with potential strategic investors who could help us develop long-haul routes,' chief financial officer Wu Yongliang said at a press conference yesterday. But he did not disclose which investors were on its radar screen. After signing an agreement last week to join Skyteam, an international airline alliance, the carrier plans to increase its capacity on international routes to 40 per cent of total capacity from 30 per cent at present. This is in part a bid to mitigate the competitive impact of high-speed railways. It will add five international destinations from its Shanghai hub this year, including London and Moscow. The carrier has lowered its total debt-equity ratio to 97 per cent after receiving 9 billion yuan in government aid last year. It hopes to further lower its debt level, on par with the level of its larger rivals, China Southern Airlines and Air China. A Citigroup report said China Eastern had a strong start for the spring-autumn peak season in March by posting a 46 per cent year-on-year increase in passenger traffic. The synergies with Shanghai Air and the influence of the expo will be magnified in the second and third quarters, the report said. Consolidation among the cargo divisions of China Eastern, Shanghai Air and Great Wall Cargo is ongoing, although the deal is complicated by the shareholder structure of each entity, management said. Cosco Group, EVA Airlines and Singapore Airlines are partners in the cargo venture. The venture is seen as a defensive measure in the light of the Shanghai-based cargo joint venture announced by Cathay Pacific Airways and Air China in February. Analysts also anticipate that China Eastern will engage in talks with China Southern over a possible merger of their cargo divisions. But management said it had nothing to disclose at the moment. Shares in China Eastern rose 3.24 per cent to HK$3.83 yesterday.