Chinese carriers post record profits

Surging travel demand and currency appreciation offset rising oil prices

Major airlines in China reported strong growth in annual profits as surging travel demand and yuan appreciation helped offset adverse factors such as rising oil prices.

China Eastern reported sales revenue of 101.7 billion yuan ($16.2 billion) in 2017, up 3.21 percent year-on-year. During the same period, its net profit reached 6.35 billion yuan, surging 40.91 percent, according to its latest earnings report.

In 2017, Air China netted sales revenue of 121.36 billion yuan, up 7.71 percent year-on-year. Meanwhile, its net profit grew 6.26 percent to 7.24 billion yuan, its earnings report said. Air China has achieved sales growth for four years in a row, and this is the strongest profit growth since 2011.

China Southern Airlines, the country's largest carrier by passenger traffic, also reported a rise in its earnings. The Guangzhou-based airline said last year, it achieved operating revenue of 127.8 billion yuan, up 11.15 percent year-on-year. Its net profit reached 5.96 billion yuan, jumping 18.18 percent year-on-year.

Hainan Airlines reported an increase in earnings with a surge in passenger transport volume. Last year, Hainan Airlines netted 47.26 percent gain in revenue to 59.9 billion yuan, and its net profit grew 13.83 percent to 3.88 billion yuan. The growth was driven by an increase in the total turnover of international and domestic air transport volumes, it said.

"Despite the oil price rise, major airlines posted positive growth last year, partly because of the appreciation of yuan, as good exchange rates can help airlines to offset some negative effects brought by the rising oil prices," said Lin Zhijie, an aviation industry analyst and columnist at one of China's largest civil aviation web portals Carnoc.

"Besides, due to the saturation of airspace resources, it's hard for carriers to add capacity. With continuing high demand from the market, the supply tends to become increasingly hard to meet the demand, and this has led to an increase in the price of flight tickets and income growth of operators," he said.

"This year, air capacity is expected to remain tight. If the demand does not change much, the business performance of the industry will continue to improve."

In 2017, Air China spent 28.4 billion yuan on fuel, up 29.24 percent over the previous year. Bian Hong, general manager of investor relations at Air China said last year, the company had to pay 5.1 billion yuan more than in 2016 for fuel because of the oil price rise, and it incurred additional costs of 1.3 billion yuan due to higher fuel usage. The carrier said that there is still a certain volatility risk in future oil prices.

Meanwhile last year, Air China adjusted the prices of 64 domestic flights, and they have helped the carrier to net more revenue. The company said it will adjust prices on more trunk lines this year, as customers are less sensitive about the prices on such routes and the demand remains robust.

"Nearly all the airlines that own wide-body aircraft are actively expanding new flights between second-tier Chinese cities and foreign cities, and this will bring certain diverse effects on the operation of Air China's aviation hubs," said Luo Yong, general manager of the marketing department of Air China.

"We plan to improve the quality of transfer services, connecting time, and hotel services in Beijing, and try to attract more passengers to transfer in Beijing," Luo said.

By 2020, it is expected that China will transfer 720 million people by air annually, meaning during the 13th Five-Year Plan (2016-20), the domestic aviation market will grow by 10 percent every year on average, according to the Civil Aviation Administration of China.

By 2024, the demand for passenger transport in China will exceed that of the United States, and China will become the largest air passenger market in the world, the International Air Transport Association forecasted.