China Southern Has Record Profit on Yuan, Focus on Higher Fares
(Bloomberg) -- China Southern Airlines Co., Asia’s biggest carrier by fleet size, said profit jumped to a record on the back of a stronger yuan and as the state-owned carrier focused on profitable domestic routes.
Net income rose 18 percent to 5.96 billion yuan ($950 million) last year while revenue rose 11 percent to 127 billion yuan, the Guangzhou-based airline said in a stock exchange filing Monday. A strengthening yuan provided tailwind as an appreciating local currency makes it less expensive to repay dollar-denominated debt raised to pay for aircraft. The yuan rose 6.7 percent against the greenback in 2017.
After adding too many direct flights to destinations including Paris, Sydney and New York, the country’s top three government-controlled carriers are now directing their efforts on higher ticket prices for inland flights amid a boom in travel. The air-safety regulator’s caps on flight slots to help improve on-time performance also led to higher fares and slower decline in passenger yields -- a key metric of profitability.
In 2018, the Chinese currency will be under pressure to weaken as foreign reserves tend to decline amid a narrowing trade surplus and capital outflows, the company said in the statement, adding the fluctuations will have a bearing on earnings.
China Southern doubled domestic passenger flight capacity addition to 8 percent in 2017, while almost halving the pace of international expansion to 14 percent in the same period.
American Airlines Group Inc. last year bought a $200 million stake in the Chinese operator, cementing a partnership between the two.
Flag carrier Air China Ltd. is scheduled to announce its earnings on Tuesday, while China Eastern Airlines Corp. is set to report on Thursday.
To contact Bloomberg News staff for this story: Dong Lyu in Beijing at firstname.lastname@example.org.
©2018 Bloomberg L.P.
With assistance from Dong Lyu