China Southern Airlines Co., Asia’s largest carrier by passenger numbers, predicted “a long period of hardship” and posted a wider first-half operating loss after fuel prices doubled.
The carrier will redeploy capacity and seek to boost revenue from first and business-class cabins to boost its performance, Chairman Liu Shaoyong said in an e-mailed statement today. The operating loss was 1.17 billion yuan ($170 million), compared with 18 million yuan a year earlier.
China Southern has plunged 81 percent in Shanghai trading this year, the worst performance in the benchmark CSI 300 Index, on concerns about rising fuel costs and slowing demand. The country’s carriers were also forced to axe hundreds of flights after the May 12 Sichuan earthquake and because of snowstorms around Chinese New Year, the country’s peak travel season.
“It’s been an abysmally bad year for Chinese airlines,” said Li Lei, an analyst at China Securities Co. in Beijing. “Fortunately, the yuan didn’t let them down.”
China Southern booked currency gains of 2.64 billion yuan in the first half, causing net income to jump fivefold to 847 million yuan, it said in a Hong Kong stock exchange statement today. The Chinese currency gained 6.6 percent in the period, about as much as it did in the whole of last year, cutting the value of the Guangzhou-based carrier’s dollar-denominated debts.
The airline’s first-half fuel costs rose 21 percent because of rising prices and the expansion of its fleet. Fuel accounted for 37 percent of operating expenses. Higher fuel prices will boost operating costs by 1.9 billion yuan this year, the airline said on July 17.
The price of fuel doubled in the year ended June in Singapore trading and hit a record $181.85 a barrel on July 3. It’s since slipped 26 percent in line with falling oil prices.
Total operating revenue rose 9.1 percent to 26.8 billion yuan in the first half, the airline said.
China Southern, Air China Ltd. and China Eastern Airlines Corp., the country’s three largest carriers, have all plunged more than 66 percent this year in Hong Kong trading. China Southern fell 0.8 percent to HK$2.58 today, before the announcement.
In Shanghai, the carrier dropped 9.9 percent to 5.27 yuan. The CSI300 Index, which tracks 300 companies, fell 5.5 percent, extending losses for the year to 57 percent.
China Southern will issue five bonus shares for every 10 held by converting capital reserve, it said in a separate statement. It won’t a pay an interim dividend.
China’s big three carriers have all trimmed capacity because of rising fuel costs. The government also allowed carriers to increase surcharges on domestic flights as much as 50 percent from July 1. China raised jet-fuel prices for internal services by 25 percent in June. Chinese airlines pay international fuel prices for overseas routes.
China Southern last month announced a plan to save 1.3 billion yuan this year by trimming costs and infrastructure investments. That included cutting the pay of its chairman and other executives by 10 percent from July.
The airline’s first-half passenger numbers climbed 5.7 percent to 28 million. It filled 73.1 percent of available seats, a 1.2 percentage-point increase.
Chinese airlines reported a combined 5.4 percent growth in first-half passengers, lagging the aviation regulator’s forecast for a 14 percent increase in full-year numbers.
“Traffic is expected to rebound in September, after the Olympic controls are lifted,” said Li. “There may be a short- term rebound for airline stocks then.”
China tightened visa regulations and beefed up security checks ahead of the Beijing Olympics in a bid to ensure trouble- free games, which run from Aug. 8 through Aug. 24.
Air China and China Eastern are yet to report first-half results.