Asia Q1 results: China sets the recovery pace

Singapore
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Asian carriers continue to lead the way in the global recovery, aided by strong domestic demand in China, writes Siva Govindasamy in Singapore

Chinese carriers led the rebound among Asian airlines in the first quarter of the year, bolstered by a government stimulus package that helped stoke domestic demand in the country. Combined operating profits among Asian carriers for the first three months of the year reached nearly $1.3 billion, up more than a billion on the same stage last year. Similarly, a small net loss was turned into a combined net profit of $1.1 billion.

IATA points to the strong rebound in the region's economies as supporting Asia-Pacific demand. "China's economy grew by 11.9% in the first quarter, while India's economy is growing by 7%. There is also greater optimism for a return to economic growth in Japan," it says.

Air China, the country's flag carrier, reported a 30.7% jump in revenues to $2.2 billion as operating profits rose to $382 million. Its operating margins more than doubled to 17.7%, the highest among China's airlines. The Beijing-based carrier attributes the turnaround to growth in domestic passenger traffic, the implementation of government measures in response to the global financial crisis, lower fuel prices and effective cost control measures. Its passenger traffic grew nearly a fifth in March, outpacing additional capacity and helping its load factor rise six points.

Shanghai-based China Eastern's revenues grew 75% to $2.3 billion, while it made an operating profit of $110 million versus a loss of $125 million a year before. Its operating margins were lower than Air China's, however, at 4.8%. Looking ahead, China Eastern expects an ongoing recovery of the global economy over the first half. "It is anticipated 2010 will witness the stabilisation and improvements of the international market, while the freight transportation market will see an overall recovery," it says. The World Expo 2010 in Shanghai and the carrier's acquisition of Shanghai Airlines also provide opportunities for growth, it adds.

Guangzhou-based China Southern saw its revenues jump 30% to $2.5 billion and recorded an operating margin of 8.8%. "In the second half year of 2009, with the implementation of the proactive fiscal policy and moderately easing monetary policy, as well as the rebound of the national economy, the domestic civil aviation market gradually revived from the worst position," it says.

Reflecting the renewed optimism of the Chinese sector, all the carriers plan to bring in new aircraft over the coming years. Air China, which bought a majority stake in Shenzhen Airlines earlier this year and is setting up a subsidiary in Shanghai, is the most ambitious with plans to add 96 aircraft to its fleet over the next three years.

Ironically, it is also Air China which recently warned that one possible red flag for the country's airline industry is the rapid growth in domestic traffic capacity. Along with the growing capacity to China offered by foreign carriers and the slow recovery of sales in the premium market, this could "put much pressure on the improvement of our operating results", says the airline. However, it adds: "We believe that we can deliver satisfactory operating results to our shareholders despite the challenging operating environment by taking advantage of the fast growth of the domestic market, leveraging on collaboration with our strategic partners and gradually strengthening our own operational capabilities in the international market."