China Southern Airlines' profit soars to new high

China Southern Airlines is the country's largest carrier by passenger numbers. It said yesterday that net profit attributable to shareholders last year reached 5.91 billion yuan (S$1.2 billion).
China Southern Airlines is the country's largest carrier by passenger numbers. It said yesterday that net profit attributable to shareholders last year reached 5.91 billion yuan (S$1.2 billion).PHOTO: REUTERS

China's three largest airlines set to post best gains in years this week

SHANGHAI • China Southern Airlines has set a record with a 17 per cent rise in annual profit, following a year of robust travel demand and strengthening yuan.

China's largest carrier by passenger numbers yesterday said net profit attributable to shareholders last year reached 5.91 billion yuan (S$1.2 billion). The result fell slightly short of the 6.6 billion yuan average of 17 analyst estimates in a Thomson Reuters poll.

Previously, China Southern Airlines' best net income result was 5.8 billion yuan in 2010.

The airline said revenue rose 11 per cent to 127.5 billion yuan.

It also booked 1.79 billion yuan in foreign exchange gains as the yuan has appreciated about 10 per cent against the US dollar since the start of last year.

The weakened dollar has helped slash the financing expenses of China Southern as well as rivals Air China, and China Eastern Airlines Corp, which used dollar-denominated loans to expand fleets.

The trio - China's largest airlines - are expected to report their strongest annual profits in years this week, as soaring travel demand and foreign exchange gains more than make up for a drop in income-per-passenger and the rising cost of fuel.

Analysts had earlier estimated China Southern, the country's largest carrier by passenger numbers, to report net income of about 6.4 billion yuan.

Later in the week, Air China is expected to report its biggest profit since 2010, and China Eastern Airlines Corp is forecast to book its best result since at least 1996.

Driving profit is a tourism boom that saw more than five billion domestic trips made last year, 12.8 per cent over 2016, plus 129 million overseas trips, up 5.7 per cent, data from the China National Tourism Administration shows.

"(Profits) are likely to be very strong," said Daiwa Securities analyst Kelvin Lau in Hong Kong. "But the major focus will be more on how the yields - especially now with fuel costs coming up - can mitigate cost impact."

The rate at which the airlines have bought planes and opened less-profitable international routes has outpaced passenger growth, impacting returns.

As of last June, the three carriers had a combined fleet of owned and leased aircraft of 1,924 planes, up from 1,868 at the same time a year earlier. Global routes opened last year include Guangzhou-Vientiane and Shanghai-Cebu.

Rising prices of jet fuel, airlines' single largest cost, is also eating into profits. As of March 16, the price has risen 28 per cent year-on-year to US$78.2 per barrel, the International Air Transport Association's jet fuel price monitor shows.

REUTERS

A version of this article appeared in the print edition of The Straits Times on March 27, 2018, with the headline 'China Southern Airlines' profit soars to new high'. Print Edition | Subscribe