Chinese Airlines Face Profit Pressure on International Routes, Tough Economy, Higher Fuel Prices
Yicai Global
/SOURCE : Yicai
Chinese Airlines Face Profit Pressure on International Routes, Tough Economy, Higher Fuel Prices

(Yicai Global) Jan. 26 -- Chinese airlines are up against a sluggish economy, higher fuel prices, the risk of a weaker yuan and redundant international flight capacity this year, after low oil prices allowed them to ending 2016 on a high note.

Spring Airlines [SHA:601021] has been expanding capacity on its international routes over the past two years, but now those itineraries are facing profit pressure, said Wang Zhenghua, the airline's chairman. Capacity exceeded demand in Japan, Thailand and South Korea last year.

The global economic pace remains "slow" and China's economy, although relatively sound now, may suffer a double dip going forward, China Eastern Airlines [SHA:600115.SH] GM, Ma Xulun, said. Growing downward pressure on the yuan against the dollar and fast-rising oil prices make outbound travel costs higher, which impacts outbound tourism, Ma said.

With airlines rushing to launch international itineraries to second- and third- tier cities, competition on these routes is set to get fiercer, Ma added.

Several Chinese airlines have ramped up their international flight capacity over the past year, with Spring Airlines and China Easter Airlines joined by China Southern Airlines [SHA:600029] and Hainan Airlines [SHA:600221].

Chinese airlines' earnings hit a new high last year, with profits for the first 11 months rising 10.5 percent to CNY60.13 billion (USD8.8 billion), according to National Civil Aviation Working Conference data. Global airlines are expected to report 2016 profits of USD35.6 billion, with net margins hitting a historical high of 5.1 percent, the International Air Transport Association forecasts.

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