China's Airlines May Perform Better Soon
Sep. 22, 2006
The fortunes of China's hard-pressed airlines may take off with the fall in world oil prices, appreciation of currency and rising jet fuel surcharges -- although this year's loses still appear inevitable, say market observers.
Ji Yuntao, an analyst with the research institute of Changjiang Securities, said two factors were to blame for the drop in operating revenues of Chinese airlines this year.
The first was the competitive pressure to cut air fares and the second was rising oil prices, he said.
The government lifted the price of aviation fuel to 5,800 yuan (725 U.S. dollars) per ton this year, up from 4,836 yuan last year and 3,742 yuan in 2004.
The airlines' expenditure in aviation fuel accounted for 35 to 40 percent of the operating costs so far this year, up five percent from the same period of last year.
Ma Xiaoli, an analyst with the Citic Securities Co. Ltd., said without the rise in oil prices, major Chinese airlines would have seen slight rises or fewer losses in operating revenues in the first six months.
Ma predicted that if oil prices continued to drop or remained at the current level, those airlines were expected to see a recovery next year.
Experts said the recent decline in world oil prices may lead to a drop of domestic aviation fuel prices.
Research by Changjiang Securities shows China's aviation fuel prices may fall by five to seven percent from October.
Mao Ang, an analyst with the China Galaxy Securities Co. Ltd., said this would bring about lower operating costs.
However, Feng Zhigang, an analyst with the Guotai Jun'an Securities Co. Ltd., said international oil prices could rise again.
As airlines often hedge risks through options, the effects of the fluctuating oil prices would be slight, said Feng.
Experts said the appreciation of the RMB would relieve airlines of the burden of foreign currency debts and reduce the cost of importing aviation fuel and renting foreign airplanes.
Analysis by the Shenyin and Wanguo Securities Co. Ltd. shows gains from the appreciation of the RMB have constituted the bulk of airline profits in the first half of this year and last year.
Ma Xiaoli said this month's rise in jet fuel surcharges would have just a small effect on passenger volume because of rising demand.
Air China's passenger volume from September to December will account for one third of the total of this year despite the surcharge rises.
However, Tang Qian, a research with the BOC International Holdings Limited, said rising surcharges would have little effect on the rise of operating revenues of the airlines because of further discounts resulting from the fierce competition.