China's major airlines reported positive financial results for the first quarter thanks to currency gains and traffic growth.

Air China's profits jumped 147 percent to 1.04 billion yuan (US$148.57 million) in the quarter, while China Southern Airlines made a net income of 796 million yuan compared with a loss of 188 million yuan a year earlier, and China Eastern Airlines earned 211 million yuan versus a 510.9-million-yuan loss.

The yuan appreciated 4 percent in the first quarter, which greatly cut value of the carriers' dollar-denominated debts. For example, when the yuan appreciates 1 percent, China Southern is estimated to gain 380 million yuan in profit, and Air China's net income may rise 260 million yuan.

"The yuan is expected to rise 10 percent this year as the US economy goes downward and the Group of Seven nations keep pressing China for greater appreciation of the yuan," according to Guotai & Jun'an Securities Co.

However, some negative facts will hinder the industry's development in the second quarter. Fuel costs, which account for about 40 percent of a carrier's total costs, is a key element. Sources said China's top planning body may raise the price by 1,200 yuan per ton this month to keep pace with global levels.

It is estimated that China Southern would lose 250 million yuan in profit if the fuel price is raised 100 yuan per ton. China Eastern would lose 220 million yuan, with Air China losing 180 million yuan.

Unprecedented security measures surrounding the Beijing Olympics will also hit carriers' performances. The Civil Aviation Administration of China introduced stricter rules, such as banning liquids on flights and shoe-off security checks, after arresting a terror suspect who smuggled gasoline on to a China Southern flight from Urumqi to Beijing in March.

Analysts said that the issue, as well the worst snowstorms in 50 years which shut down a lot of airports, dampened passenger and cargo volume in the period.

Passenger volume on domestic routes grew 11.2 percent in the first quarter, compared with 15.1 percent a year earlier.

"The passenger volume on domestic routes will grow slower than our expectation of 16 to 17 percent this year, but the demand is still robust when China's economy keeps 10-percent growth in two years," said Li Jun, an Everbright Securities Co analyst.

However, he felt pessimistic about overseas routes which handled 9.6 percent more passengers and 13.9 percent more cargo in the quarter, slower than the same period of a year earlier.

"The downward US economy and China's shrinking export growth affected the throughput on overseas flights," Li said. "The growth is hard to accelerate unless the US and Chinese economies quickly rebound."

Meanwhile, Shanghai Pudong International Airport and Beijing Capital Airport opened new terminals and runways to boost their capacity. The capital airport added 200 schedules for flights with the expansion. Foreign carriers gained only 5 percent of them but Air China received 60 percent.

(Shanghai Daily May 7, 2008)