International Finance

Weak yuan, trade war uncertainty to hit top three Chinese airlines

China Southern, Air China, and China Eastern airlines face falling profits with slower passenger demand

According to analysts, China’s top three airlines China Southern, Air China, and China Eastern are reportedly expecting a further fall in their annual profits.

The reasons cited for the lower yield is a weakening yuan which has caused inflation in the country, lower demand from passengers and uncertainty in trade market and economic slowdown due to the on-going trade war between China and the US. The rise in oil prices have also added to the fall in trade In China.

The Chinese airlines’ profit earlier witnessed a decline for the January- June period last week.

China Southern reported a 20.9 percent drop to 1.69 billion yuan in its net profit in 2019 when compared over the same time period in 2018. Meanwhile China Eastern reported a 14.9 percent drop in profit to 1.94 billion yuan in 2019.

Air China, the country’s flagship carrier reported a smaller fall in profit when compared to the other two airlines. Air China’s net profit dropped 9.5 percent to 3.14 billion yuan. Air China’s investments in Hong Kong’s Cathay Pacific Airways produced positive returns which enabled the airlines to reduce the steep decrease in its profits.

All three airlines witnessed a decrease in their passenger yields, with China Southern suffering the steepest decline of 1.65 percent when compared to 2018.

Ivan Su, an equity analyst at Morningstar told the media that the on-going trade war will lead to further decline in profit resulting in a 2.3 percent drop in yield for the year 2019.

The grounding of Boeing 737 MAX by the three airlines has constrained their ability to expand capacity which has led to a failure in achieving the targets.

The three state owned airlines had earlier announced that they would be purchasing 35ARJ21-700 regional jets, a product of Commercial Aircraft Corporation of China.


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