Published on : Thursday, August 31, 2017
By the declining first-half core profits of China’s largest airlines, the fare prices are hiked due to the aggressive expansion of plane fleets in Asia, Europe and America.
The state-owned airlines of China serve the fastest growing air travel market in the world. But their margins are dampened for the expansion of plane fleets and unhedged positions on fuel which has made them vulnerable to a 28% rise in price over the period.
Air China and China Southern Airlines respectively posted a 3.8% and 11.6% decline in profits. The China Eastern Airlines’s profit rose 34.5%, but this was boosted by a sale of its air freight unit.
The costs grew significantly, with China Southern saying that its flight operation expenses rose by 30.5% while China Eastern’s operating expenses increased by 11.7% on a 45% jump in its total aircraft fuel costs.
According to Andrew Lee, there is a forecast of pre-exceptional earnings to decline as Chinese airlines struggle to pass through the higher costs.
Another to another Chinese airlines, Shanghai-based, Juneyao Airlines, similarly blamed higher fuel costs for its 12 percent fall in first-half net profit.
The yields on the international routes in particular have declined over the period for the three big airlines.
Apart from capacity expansion of the Chinese airlines, the analysts also said the cancellation of lucrative routes to South Korea as Beijing pressured South Korea over Seoul’s deployment of a US missile defense system, played an important role.
The international passenger yields of China, excluding the fuel surcharge, which fell 1.1 percent while China Southern’s yields on international routes, which has been declined about 7.5%. The Air China’s yield on overseas routes dipped 3.2%.
The domestic air routes fared the better in comparison with China Southern. This air route is experiencing the flat yield growth and China Eastern’s rising 1.5%.