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China airline trio suffers first profit drop in 5 years

Soaring fuel prices and weak yuan take a bite out of earnings

A delivery ceremony for the first Boeing 737 Max 8 passenger jet, which was grounded after two crashes, for Air China last year.   © Reuters

GUANGZHOU -- Aggregate net profit at three major Chinese airlines fell 34% in 2018, the first drop in five years, as higher fuel costs offset healthy demand for Asian travel.

China Southern Airlines' operating revenue climbed 12% to 143.62 billion yuan ($21.4 billion), but its net profit plunged 51% to 2.89 billion yuan. China Eastern Airlines' bottom line also decreased by roughly half. Air China's net profit edged up 1.5% to 7.35 billion yuan even as revenue jumped 13% to 136.77 billion yuan.

Flight operation expenses for the carriers swelled from a roughly 30% rise in kerosene prices last year, coupled with a weak yuan.

Earnings had also slumped in 2013, a year of high fuel prices and intense competition in domestic routes and from high-speed rail. But in 2018, the three carriers enjoyed strong passenger growth of about 10%.

China Southern said its higher flight operation expenses were "primarily due to the drastic increase in jet fuel costs."

Carriers from other countries have been less vulnerable to the jump in fuel prices. Japan Airlines projects net profit growth of 1.9% for the year ended March, thanks to spread-out procurement periods and futures contracts. Net profit at American, European and Japanese airlines usually takes a hit of only a few percent when fuel prices rise 10%.

2019 poses other headwinds for the Chinese trio, such as the grounding of the Boeing 737 Max after recent crashes. The authorities here have asked domestic carriers to stop using the aircraft for the time being. About 10 Chinese airlines, including the three, had decided to buy the 737 Max. Should the grounding continue, older, less fuel-efficient models will have to remain in use.

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