China’s largest airlines have biggest slump in earnings since 2008 crisis with industry predicting worse to come

China’s three largest airlines recorded their steepest quarterly losses since the global financial crisis following a slump in travel demand as the coronavirus pandemic triggered border closures across the globe.

Air China, China Southern Airlines and China Eastern Airlines reported combined losses of 14 billion yuan (US$2 billion) in the three months ended March, deteriorating from 7.4 billion yuan of profits a year earlier, according to results published late Wednesday.

The latest reports offer a foretaste of things to come for the industry as the aviation guild the International Air Travel Association (IATA) predicts more pain ahead for its 290 member airlines. Reports this month showed bankruptcies among regional carriers are mounting while even established carriers from Lufthansa to Virgin Atlantic and Singapore Airlines are turning to governments for financial lifeline.

“The losses in the first quarter is huge, so it would be challenging for them to make up for it in the remaining quarters,” said Toliver Ma, analyst at Guotai Junan Securities. Prolonged travel bans would further hammer their international routes, while domestic restrictions would also limit their recovery, he added.

Air passenger volume may contract 48 per cent in 2020, with 4.5 million flights cancelled through June 30, resulting in US$314 billion in lost revenue for global airlines, IATA said. In March, passenger demand fell to a 14-year low with Asia-Pacific carriers bearing the brunt of it.

Air China, the nation’s flag carrier, posted a first-quarter loss of 4.81 billion yuan, reversing from a profit of 2.72 billion yuan last year. China Southern Airlines, which operates the country’s largest fleet of aircraft, including the Airbus A380 superjumbo on domestic flights from Beijing to Guangzhou, swung to a loss of 5.3 billion yuan from 2.65 billion yuan in profit. China Eastern Airlines, based in Shanghai, swung to a 3.9 billion yuan loss from a 2 billion yuan profit.

China’s aviation industry shrinks as pandemic triggers US$5.6 billion in first-quarter losses

The carriers each reported more than a 40 per cent slide in revenue as they shrank their capacity to adapt to a slump in travel demand. China’s aviation industry, comprising airlines, ground handling services and catering, incurred a cumulative loss of 39.8 billion yuan in the first quarter, the government said earlier this month.

“If the impact of novel coronavirus pandemic extends to the next quarter, we predict the company’s results from the start of this year to the next reporting quarter will be affected greatly,” Air China said in its earnings statement.

For the three Chinese carriers, their weakening financials further complicate China’s own efforts to resuscitate some of its long-suffering airlines, especially those under the HNA Group, after their debt-fuelled expansion in the past decade backfired.

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Last February, the government effectively put HNA Group under de facto state ward by appointing two government agencies and a regulator to its board in a turnaround attempt, amid speculation the three biggest carriers will help fix the growing problems.

HNA’s flagship carrier Hainan Airlines, lost 6.3 billion yuan in the first quarter compared with a 1.1 billion yuan profit a year earlier, its worst report card since at least 2003.

The Chinese carrier is not alone. At least seven airlines including German carrier LGW, Virgin Australia, Air Mauritius and units of Norwegian Air have filed for court protection in April, according to media reports, following after the collapse of Flybe in early March.

In the immediate term, however, there is some respite for domestic Chinese carriers as travel picked up this month ahead of the Labour Day holiday – one of the more profitable seasons and earnings drivers – after China eased some lockdown measures including travel restrictions.

The control in the pandemic in mainland China is showing a positive trend, aiding a nascent recovery in domestic travel, China Southern Airlines said in a statement. Yet, international traffic has continued to slip, and it expects “relatively big and negative impact” to results in the first half.

“There’s definitely a recovery, but the recovery is coming very slowly,” said Ivan Su, an analyst at Morningstar. “Even though we may have a good Labour Day numbers, things might not continue the upwards trend after that” given the viral outbreak elsewhere, he said.