Chinese airlines′ profits soar on lower fuel costs | Business| Economy and finance news from a German perspective | DW | 31.03.2016
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Chinese airlines' profits soar on lower fuel costs

Despite a significant slowdown in China's overall growth last year, the country's three biggest airlines reported huge increases in profit due to reduced fuel costs and thanks to more Chinese traveling abroad.

The Asian powerhouse's flagship airline, Air China, announced a 77.5-percent jump in earnings for 2015 boosted by record low fuel prices and robust leisure and business travel demand. Net profit was 6.8 billion yuan (629 million euros, $1.05 billion), up from 3.8 billion yuan a year earlier.

Air China's fuel bill, which accounts for about 40 percent of its operating costs, fell 30.4 percent from the year-ago level. However, it booked a 5.2-billion-yuan foreign exchange loss, due to a weakening domestic currency.

"Although low fuel prices have helped to ease the pressure on operating costs, intensified industrial competition and substantial exchange rate fluctuations have posed severe challenges," the carrier said in a statement.

Last year, the Chinese government launched a shock devaluation of the yuan, guiding the normally stable currency nearly 5 percent lower, and slowing growth has kept up downward pressure on the currency.

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In 2015, all of China's three biggest airlines abandoned advance hedging to cover variations in fuel costs after being hit by wrong-way bets late in 2009. As a result, these carriers reap the full benefit when oil prices slide.

This also helped the bottom lines of China Southern Airlines and China Eastern Airlines - number two and three in the country's air traffic market.

China Southern Airlines, for example, reported a doubling in net profit for 2015 to 3.74 billion yuan. "The group seized the opportunity of decreasing fuel prices and increasing outbound tourism, which significantly improved the profit level," it said in a statement.

China's growing middle class has boosted passenger numbers in recent years, with overseas travel topping more than 100 million in 2014. Foreign travel is tipped to grow another 10 percent this year as destinations such as the US, France, Australia, and, most recently, Britain have eased visa policies.

According to industry analysts, the opening of a new Disney theme park in commercial hub Shanghai could further increase passenger numbers. Yu Nan, an analyst at Haitong Securities, told the news agency AFP that the June opening of the Disney park would "boost the business of airlines in the third quarter."

China Eastern Airlines reported a rise of just over 33 percent in net profit to 4.54 billion yuan.

uhe/hg (AFP, Reuters)

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