Looking beyond Air China’s profits

Air China 747-400.jpg

Air China reported a net profit of 2.82 billion yuan ($412.8 million) in the six months to 30 June, but that is not an accurate reflection of the real situation at the carrier.

Chinese airlines depend mainly on domestic passenger traffic and Air China’s domestic RPKs, which account for just over 60% of its total RPKs, increased by 8.22% during the six months. Capacity, as measured by ASKs, increased by 6.4%. Yet, air passenger revenues fell by 1.48 billion yuan to 19.24 billion yuan and turnover fell by 10% to 23.11 billon yuan.

That means the airline is making less money from its operations than it really should. Its profits came from lower expenditure, with fuel costs falling 42.51% 6.1 billion yuan and fuel hedging gains coming up to 1.45 billion yuan.

Air China appears to be better at saving fuel costs than running an airline. Yes, it is unfair to single out Air China. But the reality is that the carrier – and the other Chinese airlines – have dire operations.

They need to do a heck of a lot more to improve the way they run their business and the real situation is likely to unfold in the coming months.

3 Responses to Looking beyond Air China’s profits

  1. Kinbin 27 August, 2009 at 4:22 pm #

    Instead they ought to take this once-in-a-lifetime opportunity to write-off the financial loads strapped on each aircraft as it takes off, not unlike brushing off barnacles at the hull of each boat in dry dock.

    It would be understandable to use fuel hedge gains for maximized write-offs in such dire business climate, and thereafter post losses. It would posture itself to be lean and mean during the upswing.

  2. Siva Govindasamy 27 August, 2009 at 4:38 pm #

    Will they take the opportunity though? I really don’t know.

  3. Kinbin 28 August, 2009 at 3:57 pm #

    But alas, as you have inferred, coaching the airline to long term corporate fitness is replaced by myopic accomplishments to pad up the performance of the management team. If they play the timing right, many in the team would end up in another government run operation, in a promoted role obviously….

    Such a shame…. :-(

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