China Eastern Loss Widens to 3.3 Billion Yuan
By Alman Loong, The Standard | Apr. 21, 2007
China Eastern Airlines, the third-biggest carrier in Mainland China, reported net loss in 2006 widened to 3.3 billion yuan (HK$3.34 billion) from 467 million yuan the previous year, largely due to high fuel prices and fierce competition among mainland and international airlines.
The Shanghai-based carrier posted the huge loss despite revenues jumping 36.5 percent to 37.5 billion yuan.
In 2006, China Eastern was the only one of the mainland's so-called "Big Three" airlines to lose money. Earlier, Beijing-based Air China reported net profit soared 87 percent to 3.2 billion yuan, while Guangzhou's China Southern Airlines posted net profit of 188 million yuan - from a loss of 1.85 billion yuan in 2005.
China Eastern, which has a fleet of 194 aircraft, blamed its losses on high fuel expenses. Expenditures for aviation fuel reached 13.6 billion yuan, up 53 percent from the previous year. Fuel costs accounted for 33.27 percent of total expenses in 2006. Despite strong passenger and cargo demand, China Eastern's overall load factor remained at 62.64 percent, far below the breakeven load factor of 71.15 percent.
Overall yield per revenue passenger kilometer rose 7 percent to 0.61 yuan. But the yield on Hong Kong routes dipped to 0.71 yuan from 0.76 yuan as more competitors such as Cathay Pacific Airways entered the lucrative Hong Kong-to-Shanghai market.
"The transport capacity in the whole industry increased rapidly and the government implemented an open skies policy of allowing more competitors to enter into the market, resulting in a significant increase in competition in the air transportation market in China," China Eastern chairman Li Fenghua said in a statement to the Hong Kong Stock Exchange on April 20. Li said the company plans to continue expanding this year and to adjust its existing route network to enlarge market share.
Last year, China Eastern accounted for 38.6 percent of all flights at Shanghai's Hongqiao Airport and 31.1 percent at Shanghai Pudong International Airport. In a recent research report, Morgan Stanley said what China Eastern urgently needs is a capital injection to restructure its business. Li said last November that the carrier was in talks to sell a 25 percent stake to Singapore Airlines.