Chinese Airlines hamstrung despite spiking demand
08/28/2018|4:11:03 PM|Bloomberg

China’s top three airlines are poised to show this week that they’ve been hard hit by a jump in crude prices and the yuan’s depreciation.

Combined net income at Air China Ltd., China Eastern Airlines Corp. and China Southern Airlines Co. probably fell more than 50 percent to 4.95 billion yuan ($727 million) in the first half of 2018, based on the median of estimates in a Bloomberg News survey of analysts.

The three carriers’ fuel expenses probably accounted for about 31 percent of total costs in the first half, more than in recent years, according to Tianfeng Securities Co.

The Chinese currency declined more than 5 percent against the dollar in the second quarter amid a slowing domestic economy and escalating trade tensions with the U.S.

A weaker yuan weighs on profit as domestic routes account for about 70 percent on average of the China-based airlines’ revenue, yet they pay for major expenses in dollars. The carriers have reduced the proportion of dollar-denominated debt to lessen their exposure to the U.S. currency and debt-servicing costs.

The airlines have a silver lining in yields — the money earned from carrying a passenger per kilometer. The number of travelers by air in China climbed 12 percent to 297 million in the first half of this year. Thanks to the robust demand and government easing of a regulation this year to allow higher ticket prices on certain domestic routes, yields will continue to rise, according to Guotai Junan’s Ma.

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