China Southern Airlines Expects Challenging Outlook

Hong Kong, Aug 25: | Updated: Aug 26 2002, 05:30am hrs
Chinas largest air carrier, China Southern Airlines, warned on Sunday it expected a challenging operating environment in the second half of this year because of strong fuel prices and fluctuations in exchange rates. However the airline, which on Friday reported a 39 per cent slide in earnings for the first half of the year, said it was committed to expanding its route network to grow market share and maintain competitiveness.

Negative factors such as intensive competition both within and outside the country, increases in fuel prices and fluctuations in the exchange rate of the Japanese yen and the US dollar will result in a challenging operating environment in the second half of the year, airline chairman Yan Zhi Qing said in a statement.

China Southerns first half net profit of 123.23 million yuan (US$14.88 million), which lagged market expectations, fell because of a large foreign exchange loss on loans denominated in Japanese yen. Five analysts polled by Reuters had expected net profit in the six months to the end of June to average 132 million yuan.

Shares in China Southern, one of the biggest carriers in Asia, ended 2.65 per cent lower at HK$2.75 on Friday in Hong Kong. The stock is up about 22 per cent so far this year, outperforming the Hong Kong markets Hang Seng Index, which is off about 10 per cent. In US trading on Friday, China Southern American Depository Receipts traded up 2.85 per cent at $18.40. China Southern, like rival China Eastern, has taken on yen-denominated debt to finance new aircraft and its loan repayments have risen on the back of a strengthening yen. Stripping out the exchange losses, China Southerns core business showed an improvement.

Passenger revenue, which makes up 91.3 per cent of the groups total traffic revenue, rose 5.7 per cent from a year ago to 7.62 billion yuan while cargo and mail revenue rose 4.6 per cent to 726 million yuan.

Mr Yan said he expected the overall revenue of Chinas domestic carriers to remain stable in the near term as the country opened up its domestic market to competition but he was keen to grab a bigger share of the market. Reuters

To enhance the companys operating efficiency and competitiveness, we will continue to expand our route networks and to increase our market share, he said. China now allows foreign investors to take larger stakes in its airlines and airports formerly capped at 35 and 49 per cent respectively but still requires that domestic shareholders have controlling stakes.

Sundays statement gave a more detailed breakdown of China Southerns operating results than was issued on Friday. The company said its operating profit for the first half of the year, including the foreign exchange loss, fell 20 percent to 688 million yuan from 858 million. The operating profit also took into account a loss of 7.1 million yuan from the disposal of fixed assets.

Reuters