Just a bump in the road as profits at Chinese big three as profits show decline – in actual fact they are up through the core businesses

Victoria
By Victoria March 27, 2013 14:26

Just a bump in the road as profits at Chinese big three as profits show decline – in actual fact they are up through the core businesses

Profits were down at China’s top three state-owned carriers for 2012 as the yuan continued to weaken against the US Dollar. China Southern, China Eastern and Air China posted a combined net profit of just over 10.2bn yuan ($1.64bn) for 2012 from 16.74bn in 2011 – that is a 39% fall.

This is not the Chinese market flattening off; in fact passengers carried within China are up by some margin. The reality in all of this is that the Chinese big three posted huge gains in 2011 on the back of FX fluctuations to the tune of 7.60bn Yuan whereas in 2012 they gained by just 523m yuan as the yuan posted annual gains of 4.7% against the US Dollar. In 2011 the yuan appreciated just 1%.

All of this is of course a reflection of the amount of USD debt being carried by the Chinese airlines on the back of aircraft financing requirements.

China Southern, the largest airline of the three airlines, was also the weakest in 2012 with net profit falling 49% to 2.62bn yuan. Fuel costs, which accounted for 44% of total operating costs, rose 15% to 37.4bn yuan.

Air China, posted a 35% decline in net profit due to slowing demand on international routes and for air cargo. 2012 net profit weakened to 4.64bn yuan from 7.08bn yuan in 2011. Much of this change was from a lower profit contribution from Cathay Pacific Airways and a 1bn yuan loss posted from the cargo joint venture between the two.

China Eastern reported a 35% fall in 2012 net profit to 2.95bn yuan, the second such straight decline in annual profits

This is all as expected. The Chinese domestic market continues to grow but prices are falling as competition grows. International cargo and premium passenger figures continue to show weakness in line with all other airlines across the globe. If the US decides it has to print more cash in 2013 then another large FX gain will be on the cards for the Chinese big three – Surely that cannot happen, can it? With the EU of a mind that raiding pension funds and savings accounts is all well and good then anything could happen. The Swiss Franc will need some cooling again that we can be sure of.

Victoria
By Victoria March 27, 2013 14:26
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