CHINA: More bad news from China carriers

Air China and Shanghai Airlines joined China Southern Airlines and China Eastern Airlines in announcing that they expect to report losses for 2008. For Air China it is expecting to post itsfirst annual loss in eight years. Both carriers cited declining market demand along with the impact of May’s Sichuan earthquakes, stricter security measures surrounding […]


Air China and Shanghai Airlines joined China Southern Airlines and China Eastern Airlines in announcing that they expect to report losses for 2008. For Air China it is expecting to post itsfirst annual loss in eight years.

Both carriers cited declining market demand along with the impact of May’s Sichuan earthquakes, stricter security measures surrounding the Beijing Olympics, the global financial crisis and the mid-year spike in fuel prices, followed by fuel hedge losses.

Air China noted that it suffered a US$993.3 million loss resulting from a write down in the value of its fuel hedges on 31 December. It reported cash losses of US$5.9 million and US$52.8 million on its fuel hedge contracts in November and December respectively.

Chinese carriers are banned from hedging purchases on fuel used for domestic flights, which in the past made Air China less vulnerable than its competitors to rising fuel prices. But jetfuel prices have fallen more than 70 per cent in less than six months and analysts said Air China is more exposed to the global financial crisis than rivals China Eastern Airlines and China Southern Airlines, which are also forecasting losses for 2008.

Air China saw its cargo and mail volume fall by 3.8 per cent to 815,524 tonnes while passenger volume dropped by 1.7 per cent in 2008 to 34.2 million passengers. Air China posted a profit of US$567.5 million in 2007.