China Eastern hints at route, aircraft changes if US trade war affects business
Chief executive warns, ‘China does not want to fight a trade war – but is not afraid of doing so’
China Eastern Airlines, the country’s second-biggest carrier by passenger volume, has said it is prepared to change routes and even the type of aircraft it uses, if any looming trade war between the US and China affected its passenger traffic and cargo volumes.
Speaking on Wednesday in Hong Kong after the company issued its annual results last week, Ma Xulun, Eastern’s chief executive officer, underlined it would take whatever measures necessary if the spat escalates, which could include switching its allegiance from Boeing to Airbus when it buys new aircraft.
Ma said there were “no winners in any trade war”, adding, “ultimately it’s a lose-lose situation”.
“China does not want to fight a trade war – but is not afraid of doing so.
“If the US-China trade war becomes increasingly worse, market conditions will certainly affect passenger numbers, cargo volume and the introduction of new aircraft,” said Ma.
China Eastern last week released its best profit in 20 years of 6.35 billion yuan (US$1 billion), boosted by the soaring demand for travel worldwide, and the yuan’s strong performance against its US counterpart.
But the carrier still faces pressure from steadily rising fuel costs, which may be further squeezed by the threat of a US-China trade war. Aircraft fuel made up 25 per cent of the airline’s 2017 operating expenses.
Eastern currently has around 20 Boeing-777 aircraft in its fleet, with each carrying 314 to 396 passengers, but Ma’s suggestion could mean they are replaced in time by Airbus 330-200s. The Airbus plane can carry around 247 passengers on board, of which the carrier operates around 45.
China announced on Wednesday that it will slap additional tariffs of 25 per cent on US$50 billion worth of American imports, in retaliation to the latest round of duties the US planned to impose on the mainland.
Eastern’s chief financial officer Wu Yongliang confirmed on Wednesday that rising aviation fuel prices were “likely to put some pressure on company operations”.
“But we are still able to handle it. We will continue to pay detailed attention to fuel costs,” said Wu.
DBS analyst Paul Yong said: “If the trade war escalates and is widened, we should expect that international travel, especially between China and the US, will be affected.”
He said other major Chinese carriers, including Air China, and American airlines could also be affected.
“Some leisure travellers may decide to stop visiting the US as a retaliatory reaction. We’ve seen that happen with South Korea and Taiwan to a certain extent before. The carriers themselves would then decide whether to reduce the number of flights or redeploy their capacity to elsewhere,” added Yong.
“The main profit-generator for Chinese carriers is the domestic market, so they wouldn’t be impacted as much as what [falling] share prices have suggested.”
Wu also said China Eastern was willing to buy into the Shanghai crude oil futures market “when the right timing and opportunity arise”.
Launched last month, it is the first commodity market to be traded in yuan instead of the US dollar.