SHANGHAI: Air China Ltd, the country’s flagship carrier, said its first-half net profit dropped by 12.5%, hurt by foreign exchange losses that outweighed lower fuel costs and cost control measures.
Net profit for the six months to June 30 was 3.46 billion yuan (RM2.10bil), down from 3.95 billion yuan (RM2.40bil) in the same period a year earlier.
China’s airlines have been expanding rapidly as more Chinese travel overseas and have ordered new planes to expand their long-haul fleets. But some analysts have expressed concern that the rate of expansion may outpace passenger demand, leading to overcapacity and declining profitability.
Large-scale borrowing in US dollars to buy planes has exposed the airlines to foreign exchange losses after the yuan fell 2.3% against the dollar in the first six months to become Asia’s worst currency performer.
Air China said it booked currency losses of 1.7 billion yuan (RM1.03bil) over the period, sharply higher than a loss of 123 million yuan (RM74.62mil) over the same period a year ago.
This overshadowed a 19% reduction in fuel costs and a 7.3% increase in passenger traffic. Chinese carriers are among a handful of airlines that tend not to hedge for fuel and are benefiting from current low oil prices.
The company’s yield, the average fare paid by a passenger per km, fell 4.34% to 0.53 yuan as it increased capacity.
Air China said it expects rosy demand for outbound travel from the country to continue, but that competition among airlines for passengers was intensifying and that currency fluctuation risks remained.
The impact of the weaker yuan on its results mirrored that of its rivals.
China Eastern Airlines also blamed currency fluctuations on Tuesday for pushing down its first-half net profit by 9.3% to 3.23 billion yuan.
China Southern Airlines said this week its first-half net profit slid 11% after its net foreign exchange losses ballooned to 1.52 billion yuan from 156 million yuan a year ago.
China Southern said it would monitor the market and consider carrying out hedging operations “when fuel prices reach an ideal level”.
Air China’s Hong Kong-traded shares closed down 2.75% on Tuesday ahead of its half-year earnings, underperforming the Hang Seng Index which closed 0.85% higher. - Reuters
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