Air China profits rise 2,000%

Air China on Wednesday said profits soared in the first half due to the strengthening Chinese currency, investment gains and a booming travel market.

The carrier said its net profit increased more than 2000 per cent to at least Rmb900m ($119m) for the first six months, up from the Rmb45m it reported under Chinese accounting standards in the first half of 2006.

By international accounting standards, the airline said it actually made Rmb458m in the first half of last year, with the difference arising from the fact that China’s accounting regime (which has since been revised) did not take into account the airline’s gains from hedging activity in the international jet fuel market.

Air China’s Hong Kong-listed shares shot up 17.6 per cent on Wednesday to HK$7.20 at the news but were still trading at a 42 per cent discount to the carrier’s Shanghai-listed shares, which rose 7 per cent to end the day at Rmb12.02.

“The most significant reason for our profitability from an operational point of view is the huge demand for domestic and international air travel in China,” said Rao Xinyu, Air China’s general manager of investor relations.

“But currency appreciation and our investment gains were a larger contribution to our overall profits.”

The renminbi appreciated 2.5 per cent against the US dollar in the first half, compared with 1 per cent for the corresponding period in 2006, making it cheaper for Air China to repay some of its outstanding Rmb37.4bn in foreign exchange-denominated debt, 85 per cent of which is in US dollars. The company also made about Rmb300m in the first half from the 17.5 per cent stake in Hong Kong airline Cathay Pacific it bought late last year.

The consensus estimate for Air China’s earnings for the whole year is Rmb3.3bn, more than three times its projected earnings in the first half.

China’s air travel market rose nearly 15 per cent to 86m passengers in the first six months of the year. But “the fundamentals of the Chinese airlines are still quite weak”, said Karen Chan, transport analyst at Credit Suisse in Hong Kong.

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