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Yuan appreciation a boon for
China's airlines
BEIJING -
Chinese airlines breathed a collective sigh of
relief after China allowed its currency to
appreciate by 2.1% last week. But whether they can
return their businesses to the black by the year's
end still depends on other factors, especially jet
fuel prices, airlines and analysts said.
"The yuan appreciation is definitely good
news for us," said Xu Junmin, secretary of the
board of Shanghai Airlines. "If the yuan
strengthens by 1%, our earnings per share for the
year will increase by 0.03 yuan," he told China
Daily Wednesday. Xu said the key benefit for
Chinese air carriers is that they will face lower
financing costs after the yuan appreciation
because a large chunk of their borrowing is in
foreign currencies. Shanghai Airlines has
liabilities of about US$400 million. "The yuan
move greatly relieves our burden in this regard,"
Xu said. "Another good aspect is that the cost of
purchasing and leasing aircraft and aviation
equipment will also be cut, [since] these
transactions are settled in US dollar."
Xu's words were echoed by Liu Jieyin,
president of Okay Airways Co, China's first
private air carrier. Okay, which launched its
maiden flight in March, leases a Boeing 737 from
Korean Airlines. "Our company will save more than
100,000 yuan (US$12,000) every month in leasing
fees after the yuan move," Liu told China Daily.
Such benefits, Liu said, will be even bigger at
China's leading airlines, given their larger
fleets.
In addition, maintenance and
landing fees at foreign airports are also expected
to see a currency "discount" of 2%, said Liu
Weimin, director and professor at the Aviation
Laws Research Center affiliated to the Civil
Aviation Management Institute of China.
Investors' positive expectations pushed up
the price of airline shares the day after China
ended the yuan's decade-old peg to the US dollar,
allowing the currency to strengthen 2.1% from its
previously fixed rate of about 8.28 yuan per one
dollar. "We have been anxiously waiting for the
yuan appreciation," Zeng Zixiang, director of the
policy research center at China Southern airlines,
was quoted as saying by China Business newspaper.
Positive effects seen as
limited
However, the small revaluation is
not enough to pull some Chinese airlines back into
the black, said analysts and air carriers. The key
factor will be aviation fuel prices in the second
half of the year, they said. Aviation fuel
accounts for more than 30% of the total costs of
Chinese airlines. "The benefit from the 2.1% yuan
appreciation and from fuel surcharges on air
tickets cannot offset surging operating costs
created by fuel price hikes in the first half of
this year," Xu said. Aviation fuel prices have
jumped from 3,400 yuan per ton early last year to
4,920 yuan per ton.
The General
Administration of Civil Aviation of China (CAAC)
and the National Development and Reform Commission
recently allowed Chinese air carriers to
reintroduce fuel surcharges on domestic routes
from next month until the end of the year.
Passengers will have to pay an extra 20 yuan if
they fly less than 800 kilometers and 40 yuan if
they fly more than that.
"The yuan
appreciation, in theory, will make China's oil
imports cheaper. But how much impact will the
small appreciation really have on oil prices? It's
still too early to [draw any] conclusion," said
Guo Dongmou, an aviation analyst at China
Merchants Securities. Also, the monopoly for jet
fuel supplies in China puts Chinese airlines in "a
very disadvantaged position" when trying to lower
fuel costs, Xu said. The China Aviation Oil Corp
is the only jet fuel provider in the country.
The Chinese airline industry recorded a
collective loss of 340 million yuan in the first
five months of this year, CAAC statistics show.
Surging jet fuel prices have been blamed for the
losses, CAAC Director Yang Yuanyuan said earlier
this year at a national work conference. Costs for
Chinese airlines soared 3.54 billion yuan
(US$436.4 million) during that period because of
rising oil prices, he said. Domestically listed
China Southern, Hainan Airlines and China Eastern
earlier this month issued profit warnings for the
first half of this year. Shanghai Airlines also
issued a report about a possible profit fall.
Besides pressure from fuel costs, Chinese
air carriers also face challenges from fleet
expansion that has speeded up since last year,
while market demand lags behind, some analysts
said. But Zeng said, "We should not overestimate
the positive effect of the small appreciation of
the yuan."
(Asia
Pulse/XIC) |
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