Fuel costs eat into China airlines’ profits

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China Southern says jet fuel costs hampered their profits. Wiki Commons CC BY-SA

SHANGHAI (AFP) – Asia’s biggest carrier China Southern Airlines said higher jet fuel costs clipped its profit in the first half, while China Eastern earnings rose but only with the help of a one-off asset sale.

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Net profit at state-owned China Southern dropped 11.1 percent year-on-year to 2.77 billion yuan ($420 million) in January to June, the carrier said late Tuesday in a statement to the Hong Kong stock exchange, where it is listed.

Its bottom line was hit by a more than 30 percent rise in operating expenses due to higher jet fuel costs, which offset revenue gains, the Guangzhou-based airline said.

Chinese carriers have benefitted from a boom in domestic and international air trips as China’s middle class spends more on travel and leisure.

China Southern said its total operating revenue increased 11.7 percent in the first half, to 57.82 billion yuan.

China Southern’s shares jumped 4.74 percent in Hong Kong yesterday and were 5.81 percent higher in Shanghai, where the company also is listed.

China Eastern said in an exchange statement that its net profit for the first half jumped 34.4 percent to 4.34 billion yuan, but that was due to 1.9 billion yuan earned through the sale of a logistics subsidiary.

The Shanghai-based carrier’s jet fuel expenses surged 45 percent.

“The international crude oil prices have increased significantly from a lower comparison base in the same period last year,” China Eastern said, adding that intensifying industry competition resulted in a drop in revenue from its international routes.

However, strong demand boosted operating revenue nearly 10 percent.

China Eastern said in July it will buy a 10 percent stake in Air France-KLM for about 375 million euros (then $438 million) as it moves to expand its network in Europe.

Shares of China Eastern rose 3.78 percent in Hong Kong and up 2.43 percent in Shanghai.

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