Chinese airlines’ profits dented by fuel costs, but carriers increasingly compete on global market

By Shen Weiduo Source:Global Times Published: 2019/3/31 20:28:40

Chinese carriers increasingly compete on global market

A China Southern Airlines flight to arrive in Beijing on May 13, 2017 Photo: VCG

China Southern Airlines and China Eastern Airlines, the country's largest and second-largest carriers by passenger numbers, reported profit declines of about 50 percent for 2018, which industry analysts said reflected rising oil prices and fluctuations of the yuan.

China Southern's profits fell 49.56 percent to 2.98 billion yuan ($443.59 million), while China Eastern's dropped 57.35 percent to 2.71 billion yuan.

Both had double-digit revenue growth, with China Southern's revenue rising 12.7 percent to 143.62 billion yuan.

"China's civil aviation industry is in a rapid growth period, and the volume of passenger traffic also shows double-digit growth every year, so the rapid growth of these airlines' revenue is a matter of course," Lin Zhijie, a veteran market watcher, told the Global Times on Sunday.

According to the International Air Transport Association, China will displace the US as the world's largest aviation market in the mid-2020s. The body said that the rebalancing of China's economy toward consumption will support strong passenger demand over the long term.

"Rising fuel costs and a weaker yuan depressed the performance of domestic airlines," Lin said. 

According to a report from on Saturday, China Southern spent 42.92 billion yuan on jet fuel last year, up 34.6 percent. That was equivalent to 33.4 percent of operating costs.

Meanwhile, the yuan fell by more than 5 percent against the US dollar last year.

Beating analysts forecasts' and overcoming fluctuations in the yuan and fuel price rises, Air China, a major rival to China Southern and China Eastern, posted a 1.3 percent increase in its 2018 annual net profit. It Revenue rose 12.7 percent to 136.77 billion yuan.

Industry analysts said that the outstanding performance of Air China was largely due to its investment in Cathay Pacific Airways, which reported a profit for the first time in three years. 

Air China has a 29.99 percent stake in the Cathay Pacific Airways.

Lin noted that although oil and currency factors might further weigh on the profits of major airlines in the year ahead, carriers' profits would still be supported by the country's fast-developing civil aviation industry.

In 2018, all three airlines had passenger load factors of over 80 percent. China Southern achieved a load factor of 82.44 percent, highest among the three.

A high load factor indicates that an airline has full planes with most seats occupied by passengers. It's an important factor that will influence an airline's revenue and profits.

Apart from competing for a huge domestic market, domestic airlines, including the three giants, have also been actively exploring the international market in the past year, in a bid to find new growth points. 

"In recent years, in the international market, Chinese airlines are on the offensive, and foreign airlines are on the defensive," Lin said.

Most of the newly opened routes are dominated by Chinese airlines, thanks to the increasing competitiveness of Chinese companies, as well as huge demand among Chinese people to travel overseas, Lin said.

For example, in the European and US markets, Chinese airlines have shares of about 60 percent, and in Australia, they have a market share of over 80 percent, Lin said.

Industry analysts predicted that competition is set to be more fierce in the domestic market, with the rise of budget airlines and new modes of transport such as high-speed trains. This will pose more challenges for the three airlines in the year ahead.
Newspaper headline: Airlines’ profits dented by fuel costs


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