China's State-Owned Airlines Report Drop In First Half Net Profits

China Airline Industry
The logo of China Eastern Airlines is shown on a panel at a check-in counter at Hong Kong Airport in Hong Kong (Photo: Reuters / Bobby Yip)

Three of China's top state-owned airlines, namely Air China, China Eastern Airlines, and China Southern Airlines, all reported slight increases in their revenues for the first half of the year.

Unfortunately, all three airlines had also experienced significant drops in their net profits for the period.

The airlines mainly blamed the results on the slowing demand for domestic and international travel in the country. The airlines also blamed their poor performance on the recent groundings of some fo their airplanes due to the issues that faced Boeing and their 737 Max aircraft.

For the first six months of 2019, Air China reported a slight increase in its revenues with an overall drop in net profits. The company reported first-half revenues of $9.1 billion, which was a 1.67 percent increase when compared to the same period last year. Overall, the airline only managed to record a net profit of $440 million, a 9.49 percent decline when compared to the same period a year ago.

Shanghai-based state-owned airline China Eastern Airlines also reported much of the same results this week. The airline reported an 8.02 increase in its sales revenue to $ 8.23 billion for the first half of the year. Its net profits for the period fell by 14.89 percent year-on-year to around $270 million.

Meanwhile, Guangzhou-based state-owned airline China Southern Airlines also reported an increase in revenue but a drop in profits. The country's largest airline by passenger traffic reported total sales revenues for the first half of $10.21 billion. This was an increase of 7.97 percent year-on-year. The company net profits fell by a significant 21.85 percent year-on-year to $240 million.

According to the three airlines, several factors for the period had significantly hampered their ability to generate ample profits. The companies revealed that fuel was their biggest expenditure for the period, accounting for an average of 32 percent of their total operating costs.

Despite the geopolitical turmoil, oil prices haven't fluctuated that much. Industry experts have pointed out that other more significant factors were at play during the first six months of the year. These factors include the recent depreciation of China's currency, the ongoing trade tensions between China and the United States, and the global grounding of Boeing's 737 Max jets.

Among the three airlines, China Airlines was the most affected by the global grounding of Boeing's jets. Prior to the groundings, the airline flew 96 out of the 371 737 Max jets in service globally. The grounding is estimated to have cost the airline more than 1 billion yuan in losses. 

All of the aforementioned factors and the recent opening of the Beijing Daxing International Airport proved to be a huge challenge for the state-owned carriers.

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