Air China and China Eastern Airlines post losses

Two of China’s biggest airlines post losses

Air China and China Eastern Airlines, two of the largest airlines in China, have reported heavy losses for the third quarter of 2008, which both carriers blamed on weakening demand and higher costs of fuel.

Air China Limited, the state-owned carier of the People’s Republic of China is the country’s flag carrier, the country’s largest international carrier and the only airline to fly the national flag on its entire fleet. Air China, based in Beijing, operates over 5,100 flights each week worldwide and flies to about 120 destinations.

China Eastern Airlines Corporation Limited, based in Shanghai, operates international, domestic and regional routes. Its main base is Shanghai Pudong International Airport, with a hub at Shanghai Hongqiao International Airport.

Air China said in a statement that the carrier suffered a loss of 1.9 billion yuan ($277 million) in the third quarter of 2008, compared with a profit of 2.2 billion yuan in the same period in 2007. Also, the airline’s sales dropped by 4% to 13.9 billion yuan.

Air China said it was compelled to cut hundreds of flights during the Beijing Olympics in August 2008 as the Beijing city’s airport focused on services for the Olympic Games. Regular services at Beijing Capital Airport were cut by 7% to 1,250 flights a day from July 20, 2008, to August 31, 2008, because of the Olympics.

The carrier also suffered losses on account of hedging after prices of jet fuel plunged by 35% in the third quarter, forcing it to buy, according to contracts, fuel for more than the spot rate.

The statement added: “Air China’s fair value loss, which includes fuel-hedging, surged to 1.06 billion yuan from 58.5 million yuan a year earlier. Spending on jet fuel also increased by 64%, or 2.7 billion yuan, because of expansion and a 19% increase in Singapore-traded fuel prices in 2008 ending September 30.”

Air China’s passenger volume fell by 9.4% to 8.7 million in the third quarter. In the first nine months, passenger numbers slipped by 4% to 25.3 million, or 18% of China’s total passenger numbers.

According to aviation analysts, Air China is the most at risk among China-based carriers from fluctuations in fuel prices because of its larger overseas network. Chinese carriers pay international prices for overseas services and buy fuel used on domestic routes at government-controlled prices, which are adjusted quarterly.

The result, the analysts said, was Air China posting its first quarterly loss since it listed in Shanghai in November 2006.

China Eastern Airlines, China’s third largest carrier, suffered a loss to the tune of 2.33 billion yuan for the three months ending September 2008, after having made a net profit of 976 million yuan in the same period in 2007. It posted a net loss of 2.29 billion yuan for the first nine months of 2008, compared with a net profit of 1.03 billion a year earlier.

China Eastern Airlines said in a statement: “As the fourth quarter is the traditional off-season for the aviation industry and the demands in the aviation markets may not be revived in the near future, the company expects to record a loss for the year 2008.”