Hong Kong company reporting season

China Southern Airline posts lower profit on increased fuel costs

PUBLISHED : Tuesday, 29 August, 2017, 9:28pm
UPDATED : Tuesday, 29 August, 2017, 10:56pm

China Southern Airlines, Asia’s largest carrier, said its first-half net profit fell 11.1 per cent to 2.77 billion yuan (US$420 million) on surging fuel costs.

The decline, however, was pared by a net exchange gain of 561 million yuan due to an appreciation of the yuan against the US dollar in the first six months, according to a filing to the Hong Kong stock exchange on Tuesday. The carrier had recorded a first-half net exchange loss of 1.52 billion yuan in the previous year.

The overall passenger yield per revenue passenger kilometres (RPK), a key measure of profitability, also weakened to 0.48 yuan, dropping two per cent from the first half of 2016.

The airline reported an 11.8 per cent increase in operating revenue to 60.49 billion yuan in the first six months, driven by the increased revenue from domestic and international routes.

Total operating expenses increased by 19 per cent to 57.9 billion yuan, no thanks to a bigger rise in flight operations expenses. The latter rose 30.5 per cent to 30.33 billion yuan from the same period in 2016 mainly due to rising jet fuel costs.

Domestic passenger revenue was 40.72 billion yuan, up 12.5 per cent from the first-half of 2016. First-half passenger revenue for its international routes rose 4.7 per cent to 11.8 billion yuan, but revenue for the Hong Kong, Macau and Taiwan routes fell 7.5 per cent to 1.11 billion yuan.

In the first half of this year, China Southern faced a “complex external environment of great downward pressure on domestic economy, substantial increase in oil price over the same period of the previous year and rising competition from high-speed railway”, said Xie Bing, the company secretary said in the statement.

Xie is however, optimistic of the industry’s performance for the second half of the year, expecting China’s total passenger volume to maintain an approximate 12.4-per cent growth rate and outbound passengers to reach a record high of 140 million, representing a 14.8-per cent increase.

While he expected the Chinese currency to strengthen against the US dollar and oil prices to stabilise, the airline would face intensified market competition abroad and at home that is brought about by China’s accelerated high-speed rail development, as well as pressure from increased domestic and international airline security measures.