Air China Profitable Again (and Again)
Centre for Asia Pacific Aviation | Mar. 20, 2007
In the late 1990s and early this decade, Air China consistently struggled to meet the three consecutive years of profitability required by law to list its shares, much to its own frustration.
"But in 2006, Air China racked up its third straight year as China's most profitable airline - and is well positioned to reign supreme for some time yet", said Peter Harbison, Executive Chairman of the Centre for Asia Pacific Aviation.
Air China's emergence as China's most profitable carrier relate to its:
- Location in Beijing - providing strong government/corporate travel and long-term political favouritism, resulting in the best international network of the "big three" Chinese airlines;
- Consolidation partners - Air China merged with stronger domestic carriers relative to its rivals' and has absorbed them more effectively, helping it achieve better asset overall utilisation;
- Strong partnerships - Air China enjoys excellent relationships with Star Alliance members (a grouping it is set to join), while having last year secured a cross-equity deal with Cathay Pacific, which offers the potential for future operating synergies.
The carrier's latest 12% lift in net profit last year (according to international accounting standards) was in line with market forecasts and came on the back of a 14% increase in passenger numbers and higher passenger yields (+3%), thanks to the booming Beijing market. Cargo volumes were strong, but cargo yield fell almost 5% last year and load factors have been weak so far in 2007, albeit with significantly expanded capacity.
"Speculation at the start of the year over a government cash injection into the "Big Three" Chinese airlines has died down, and, with airline profitability generally on the rise as fuel prices fall, the government may hold off investing more funds in the airline sector for now", said Mr Harbison.