Air China Boosts Profits to 3.2 Billion Yuan
By Alman Loong, The Standard | Mar. 20, 2007
Air China, the mainland's largest international carrier, saw net profit grow 87 percent to 3.2 billion yuan (HK$3.23 billion) in 2006 after selling its stake in Dragonair to Cathay Pacific.
Turnover too rose 17 percent to 47 billion yuan on the back of stronger passenger and cargo traffic. The number of passengers rose 14 percent to 34 million while cargo totaled 1.02 million tonnes, a 15 percent rise.
Air China's profit was in line with Morgan Stanley's forecast of 3.16 billion yuan. It has been China's most profitable carrier over the past three years, thanks to higher margins and better asset utilization, according to Citigroup analyst Ally Ma. "Our 2007 earnings forecasts are based on a 12.7 percent passenger traffic increase and a 1 percentage point lift in load factor to 77 percent for the full year."
With four 747-400 freighters added to its fleet last year, Air China's cargo capacity jumped 25.3 percent in both January and February, although load factor dipped to 48.9 percent. Cargo accounted for 10 percent of Air China's total revenue in 2005.
Air China won shareholder approval in December to proceed with a HK$3.23 billion buyout of China National Aviation Corporation. The acquisition will be funded by bank loans.
Air China sold 2 billion yuan of one-year debt to finance its capital needs after raising 4.59 billion yuan in a share placement midway through last year. There was speculation that the central government would inject at least 10 billion yuan into the "Big Three" - Air China, China Eastern Airlines and China Southern Airlines - to lower their gearing and improve profitability.
But Morgan Stanley analyst Edward Xu said Air China could not expect a fresh capital injection in the near term.
Air China's interest in Cathay Pacific rose to 17.3 percent during the share realignment in September that saw Dragonair become a fully owned Cathay subsidiary. Lower jet fuel prices should be reflected in its earnings for 2007-2008.
Air China recommended a final dividend of 0.049 yuan per share, up from 0.024 yuan per share in 2005. Air China shares rose 1 percent to HK$5.94 on March 19 before the earnings announcement. The stock has gained 41 percent this year.