Tuesday, 28 August 2012

China Southern Profits Dive

China Southern Airlines, Asia’s biggest carrier by passenger numbers, said first-half profit tumbled 84 percent because of an economic slowdown, higher fuel prices and currency fluctuations. Net income fell to 449 million yuan ($70.6 million) from 2.76 billion yuan a year earlier, the Guangzhou, China-based company said in a filing to Shanghai stock exchange today. That compares with the 570 million yuan median of three analyst estimates compiled by Bloomberg News.

Sales rose 13 percent to 48 billion yuan. The carrier, China’s biggest on domestic routes, filled a smaller percentage of seats in the period than a year earlier as expansion outpaced demand amid China’s cooling growth. The yuan also weakened against the dollar, the first half-year decline since 2009, ending large currency gains that have previously supported Chinese airlines’ earnings. “Business travel demand in China was dragged by the economic slowdown, which was worse than expected,” said Li Lei, a Beijing-based analyst at China Securities Co. “The carrier’s plans to add more overseas flights will be good in the long term, but may pressure profitability in the short term.” The airline, China’s only operator of Airbus SAS (EAD) A380s, has also suffered from only flying the superjumbos on domestic routes, he said. The planes will be introduced on the carrier’s Guangzhou-Los Angeles route in October, ending a yearlong wait caused by regulatory delays. Passenger Yields The carrier’s passenger yields, a measure of average airfare, increased 3 percent in the first half from a year earlier. Its load factors, or the percentage of seat filled by paying customers, dropped 1.1 percentage points to 79.5 percent, according to an earlier trading update.

The carrier flew 41.2 million passengers during the period, 7.2 percent more from a year earlier. Average domestic fuel prices in China were about 15 percent higher in the first six months than a year earlier, Li said. Jet kerosene prices averaged $127.14 a barrel in Singapore trading in the period, compared with $125.91 a year earlier, according to data compiled by Bloomberg. The company said in July that it expected first-half net income to slump more than 50 percent. It is due to receive the nation’s first Boeing Co. (BA) 787 later this year.

The airline rose 0.8 percent to HK$3.60 at close of Hong Kong trading today, before the earnings was released. The carrier has fallen 32 percent in the past year, in line with declines for Air China Ltd. and China Eastern Airlines Corp. The benchmark Hang Seng Index has risen 1.1 percent in the period. The yuan weakened 0.95 percent against the dollar in the first six months, according to the China Foreign Exchange Trade System. Chinese carriers benefit from a stronger yuan as it pares the repatriated value of dollar-denominated debts used to buy planes and fuel overseas. China Southern has unveiled a plan to challenge Singapore Airlines Ltd (SIA) and Emirates on Australia-Europe routes using its hub in Guangzhou. It started flights to London in June, building on existing services to Paris and Amsterdam. Australian services are due to climb to as many as 110 a week by 2015 from 42.