Air China shares lose early gains after H1 profit fall

Shares in Air China slipped in Hong Kong Wednesday (Aug 27) after the flag carrier reported a 55 per cent drop in first-half net profit. Based on international accounting standards, the company recorded 510.4 million yuan (S$103.6 million) in net profit for the first six months, it said late Tuesday in a filing to the Hong Kong exchange, where it is listed.

Although revenue grew 8.5 per cent year-on-year to 49.9 billion yuan in the first half, passenger yield -- a measure of the average fare paid per mile by passengers - dropped 3.33 per cent to 0.58 yuan from a year earlier, it said. The results were in line with a profit warning issued in July, when it warned of a drop of 55-65 per cent caused by foreign exchange losses as the yuan weakened. Using Chinese standards net profit was 474.38 million yuan (S$96.3 million), down from 1.12 billion yuan from the in same period last year.

Shares in the Chinese flag carrier jumped in the morning 1.43 per cent but by early afternoon were trading up 0.2 per cent. A 2.5 per cent decline in the yuan resulted in a net exchange loss of 721 million yuan, compared with a net gain of 1.1 billion yuan for the same period last year, the airline said.

Higher jet fuel costs, which rose 4.99 per cent to 17.2 billion yuan, and intensified competition also contributed to the decrease in profits, the statement said. "The exchange rate volatility of the (yuan) against the US dollar was the primary factor that led to the overall decline of our first half results," the airline said in the filing. It said it had faced a "complex and volatile economic environment both internationally and domestically" for the reported period, as it faced increasing competition in the aviation market.

China's air industry is undergoing a rapid expansion with a slew of new start-ups now competing with older stablemates. Chinese airlines carried 350 million passengers last year, up nearly 11 per cent from 2012, according to official figures, while the civil aviation authority said the country will have more than 230 airports by 2015, up from 193 last year.

Air China said it saw moderate growth in the domestic passenger market, and a moderate recovery in the air cargo market for the first half of the year. Exchange rates and oil prices are expected to remain uncertain for the remainder of the year, it added. Air China took delivery of 28 new aircraft in the reported period including Boeing 777-300s and Airbus 330s, and retired 13 old aircraft to reduce operating and maintenance costs.

The International Air Transport Association in June said airline profits are improving and that it expects companies to record combined net profits of US$18 billion for 2014, down from its earlier forecast of US$18.7 billion made in March.

SOURCE