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Yuan boosts airline

By Karen Cho (China Daily)
Updated: 2008-04-22 09:21

As the mainland's export sector has been grappling with the yuan's appreciation, the currency's growing strength has helped China Southern Airlines, one of the largest passenger carriers, overcome rising jet fuel prices.

In 2007, China Southern Airline's net profit increased nearly nine-fold to 1.87 billion yuan ($266.97 million). And in 2006, earnings per share increased 10-fold from 0.04 yuan to 0.43 yuan.

China Southern Airlines, which makes profits in yuan and holds 96 percent of its debt in US dollars, made a staggering 2.8 billion yuan in exchange gains last year, when the country's currency began a steep climb as the greenback weakened.

The exchange rate gains surpassed the mounting cost pressures on the aviation industry that have been spurred by surging fuel prices. In 2007, the airline's operating expenses jumped 15 percent to 53 billion yuan. Fuel alone cost the airline 18 billion yuan last year, accounting for 34 percent of China Southern Airlines' total operating expense.

The company's chairman Liu Shaoyong said jet fuel prices had created a challenging operating environment for airlines. However, the impact was alleviated to some extent by the airline's use of oil price hedging, he added.

"Hedging 20 percent of our fuel last year saved us 60 million yuan in fuel costs," Liu said.

Liu said he believed fuel prices would continue to rise this year but at a slower pace, and oil prices would likely hover around $100 per barrel. To mitigate the additional costs, Liu said the company would continue to ensure fuel efficiency through upgrading aircraft and improving flight planning.

However, the chairman said the company might ask for another fuel surcharge increase if oil prices continue climbing. Fuel surcharges for domestic routes were revised in November 2007, with short hauls increasing from 10 yuan to 60 yuan per trip. Fuel surcharges increased by 20 percent to 100 yuan for passengers taking longer trips.

China Southern Airlines benefited from the mainland's economic robustness, and its passenger number increased by 16 percent to 56.9 million, bringing in 49.6 billion yuan in passenger revenue.

The airline said it would continue developing its "dual-hub" strategy in Beijing and Guangzhou, capital of Guangdong province. Liu said the airline's market share in Beijing and Guangzhou respectively stood at 20 percent and 57 percent last year.