Financial markets have given a lukewarm welcome to China Southern Airlines' first full set of results, the carrier listed in Hong Kong and New York a year ago. Despite a headline profit improvement, there are concerns over static domestic traffic and plans to lay off capacity.

Although the airline's bottom-line figures remained strong with a net profit of ´1.1 billion ($138 million) for the year, the result includes a ´144 million gain from the insurance claim on the loss of a Boeing 737-300 last May. In 1996 the airline had achieved a substantially smaller profit of ´725 million, but that result was also affected by special items, coming after a ´173 million write-down on aircraft values. The underlying profit improvement over the two years, excluding these exceptional items, therefore stood at only 11%.

The financial markets and some analysts appeared to be less than impressed, with 5% being shaved off the share price in the wake of the announcement.

Domestic passenger movements, which accounts for the vast bulk of the China Southern's total traffic, grew by less than 1%. Revenue, however, was boosted by a hike in air fares, while traffic on regional routes to Hong Kong remained strong. The airline also benefited from the weakness of the yuan as it continued its international expansion with new routes to Los Angeles and Brisbane.

The company states that it expects "-to continue to face less than favourable market conditions in 1998", and plans to lay off some capacity. The company will return a leased Boeing 767-300ER, two 757-200s and two 737 this year. It adds that if the situation deteriorates any further it may sublease out a further two 737s and possibly cap its 777-200 fleet at seven aircraft, deferring delivery of final two aircraft due this year.

Source: Flight International