Two of China's major airlines reported sharp falls in profit for the first half ended 30 June. This was despite strong traffic growth as tougher domestic competition and foreign exchange losses ate into earnings.

Shanghai-based China Eastern Airlines and Guangzhou-based China Southern Airlines blamed foreign exchange losses for their poor results. China Southern's net profit fell 39% to 123 million yuan ($15 million) and China Eastern's was cut by 64% to 26 million yuan. The results fell below analysts' expectations.

In China Southern's case, the drop came despite revenue increasing 6% to 8.6 billion yuan. At China Eastern, turnover reached 5.94 billion yuan from 5.8 billion yuan, but revenue from domestic operations was down by nearly 1%, and income from Hong Kong services fell almost 10%.

Analysts say the carriers' performances were strong relative to counterparts in many other parts of the world, but they were hit by substantial foreign exchange losses on Japanese yen-denominated loans. In addition, while demand for domestic services continued to grow at a rapid rate in the first half, more intense pricing competition cut into yields.

China Southern's revenue passenger kilometres (RPK) during the first half increased 16.5%, while the number of passengers carried during the period went up 13.2% to 10.39 million.

China Eastern's RPKs grew 14.1% during the period, while the number of passengers carried increased by 12.7% to 5.44 million.

Source: Flight International