Two major Shanghai-based airlines released 2007 earnings
previews yesterday, with China Eastern expecting a turnaround while
Shanghai Airlines predicted a loss.
A shares in China Eastern and Shanghai Airlines plunged to daily
limits in yesterday's trading.
China Eastern said yesterday a big increase in foreign exchange
income had helped it turn a profit in 2007, in contrast to a loss
of 2 billion yuan in 2006. The company didn't provide figures for
last year.
Separately, Shanghai Airlines attributed its expected loss for
last year to soaring fuel costs. Some new routes are still in the
initial investment period before they generate profit, the company
said in a statement to the Shanghai Stock Exchange.
Analysts said rising fuel oil prices have put pressure on
airlines.
Fuel oil provider China Aviation Oil Holding Co reported that it
raised the fuel oil price by 210 yuan per ton in the first quarter
this year, in response to the soaring international oil price.
In November last year, the National Development and Reform
Commission (NDRC) raised the price of kerosene for airlines by 500
yuan per ton.
"The airlines can transfer the rising cost to consumers by
lifting prices, as aviation market demand still remains huge," said
Zhuo Yue, an analyst at GF Securities, adding that the government
is expected to raise the fuel-added fee soon.
In November last year, the NDRC raised the fuel-added fee by 10
yuan for routes under 800 km and by 20 yuan for those over 800
km.
"China Eastern has big earnings from exchange income, which
largely offset the rising cost," said Zheng Qingping, an analyst at
Tebon Securities.
"The total assets of Shanghai Airlines are much smaller than
China Eastern's, so it is more vulnerable to price changes," Zheng
said. China Eastern had total assets of 67.1 billion yuan by the
end of September, while Shanghai Airlines had 13.1 billion yuan in
total assets.
Meanwhile, Shanghai Airlines Cargo Intl Co Ltd, which is 55
percent-owned by Shanghai Airlines, was still in the initial
investment stage, after it began operation in July 2006. "It also
contributed to Shanghai Airlines' loss," said Zheng. Shanghai
Airlines Cargo posted a loss of around 70 million yuan in the first
half of 2007.
Zhuo said the booming aviation market would continue in 2008,
with the expectation of currency appreciation and the industry
integration.
(China Daily January 23, 2008)
