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Weak yuan, slowing economy hit China's big three airlines

HIT by a cheaper yuan and a slowing domestic economy, China's state-owned airlines have suffered a fall in earnings in the first six months of 2016, with Asia's largest air carrier by passenger size, China Southern Airlines, reporting a fall of 10 per cent in net profit to CNY3.11 billion (US$467 million) during the period.

Air China, a member of airline group Star Alliance, said its net profit for the same period tumbled 17.5 per cent to CNY3.46 billion from a year ago, according to Nikkei Asian Review.

China Eastern Airlines' net profits declined by 9.3 per cent to CNY3.23 billion in the first half. The airline blamed "exchange rate fluctuations, geopolitical conflicts and terrorist attacks overseas" for the fall in earnings.

In the first half of 2016, the Chinese currency depreciated two per cent against the US dollar, resulting in currency losses for the airlines.

Analysts said that airlines are exposed to currency risks as they pay for fuel and aircraft leases in US dollars while most of the revenues they receive are in yuan.

Daiwa Capital Markets analyst Kelvin Lau said that this made it "difficult to hedge totally against the negative impact of any Chinese yuan depreciation."

The slowing Chinese economy also hurt demand for travel. China Southern said the number of passengers slipped 0.2 per cent to 46.5 million in the first half because of a drop in business travellers and tourists.

China Eastern reported a 4.8 per cent drop in cargo and mail traffic volume, or a decrease of 16.4 per cent in revenue from that sector, from a year earlier. Air China, too, saw a 13.2 per cent decline in air cargo revenue to CNY3.75 billion.