Dropping fuel prices boost airline profits

An aircraft of Air China Ltd parked at the Shanghai Hongqiao International Airport. Sun Haojun / for China Daily

Declining oil prices have helped China's three largest airlines to collective net first-half profits of 10.98 billion yuan ($1.73 billion) - already higher than their total profits last year.

China Southern Airlines Co Ltd delivered 3.48 billion yuan in net profit during the six months, a 429.14 percent year-on-year rise.

Its first half figures followed on from Air China Co Ltd, which reported 3.94 billion yuan in first-half profit, a 730.05 percent rise, and China Eastern Airlines Corp Ltd, whose 3.56 billion yuan profit represented a 236 percent increase.

Officials at all three said lower fuel costs was the main reason for the surge in numbers.

In recent years the international crude oil prices have hovered around $110 per barrel, but since the fourth quarter of 2014 they have averaged about $60 per barrel.

Analysts have noted that jet fuel prices have dropped sharply, clearly good news for airlines around the world.

Air China said its fuel bill had dropped 29.84 percent in the first half compared with last year, and accounted for 30.1 percent of overall costs compared with 40.6 percent at this stage of 2014.

China Eastern's fuel cost was 29.35 percent less, and China Southern said its overall operational costs declined 11.96 percent as a result of the fallen prices.

Away from fuel, analysts also said the airlines' bottom lines had also been helped during the half year by rising demand for air travel in China.

Yu Nan, an analyst from Haitong International Securities Group Ltd in Shanghai, said the country's ongoing shift toward domestic consumption and rising personal incomes meant more could afford to travel by air.

The trend has been helped, too, by the government's much promoted Belt and Road Initiative, said Yu, which has sparked a rise in business travel.

"The entire civil aviation industry has enjoyed 10 to 20 percent growth this year, as international routes grew more popular than domestic ones," he said.

Yu's observations are backed by the most recent official statistics from the Civil Aviation Administration of China which showed Chinese carriers handled 210 million trips in the first six months, a 12.5 percent rise compared with the first half of 2014.

Han Yichao, an analyst from Changjiang Securities Co, said the three largest Chinese airlines now account for around 60 to 70 percent of the country's entire passenger volume, meaning their profit margins are actually far higher than the industry average.

The current third quarter is the traditional peak season for civil aviation, and industry commentators are optimistic of continued strength in the second half.

One fly in the ointment, however, might be the recent weakening of the national currency, the yuan, which could dampen profits as most aircraft and air material buyers make their main purchases in dollars.

Those added costs, however, could still be wiped out by further drops in fuel prices, which are expected to continue edging lower until the end of the year.