Mainland carriers hit hard by yuan depreciation and anti-graft campaign

2 Sep 2014 by Tamsin Cocks

The results are official. All three major mainland Chinese carriers have released their results for the first half of 2014 and – to no one’s surprise – they aren’t pretty.

Air China, the country’s largest airline by market value, has posted a 55.4 per cent drop in profit to RMB510 million (US$82.9 million), due to a weaker yuan inflating overseas debt payments.

Meanwhile, China Eastern Airlines has also reported poor results, but fared a little better, booking a first-half profit of RMB14 million (US$2.3 million), compared with RMB582 million (US$95 million) profit in the same period a year earlier.

China Southern Airlines, the mainland’s largest carrier by fleet size and passenger volume, has done worst and reported a first-half net loss of RMB1.02 billion (US$166 million) compared to RMB302 million (US$49 million) profit a year earlier.

The mainland’s number four, Hainan Airlines, has reported a 25 per cent drop in first-half profit to RMB482.8 million (US$78.6 million) and said it was less affected than the three bigger carriers because it mainly focused on the domestic market and regional routes with less competition.

The yuan depreciated as much as 3.39 per cent against the dollar in the first half of this year, driving up costs for the Chinese carriers, which traditionally have the majority of their debt denominated in the greenback.

The Chinese carriers’ said their earnings have also been hit by Beijing’s anti-graft campaign. China Southern, for instance, said it has lost more than 1 million premium travellers since the campaign started and subsequently announced it would rebrand domestic first as business class to reclaim business (see here).

China Eastern Airlines’ domestic offshoot China United Airlines announced yesterday it would follow China Southern’s lead to also remove first class from its aircraft and replace it with business class seats instead (see here).

Dominic Sebastian Lalk

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