Air China Ltd, the nation's largest international carrier, reported a 21 percent drop in first-half profit and China Eastern Airlines Corp posted a loss after fuel prices doubled and natural disasters disrupted travel.

Air China's net income slipped to 1.24 billion yuan (US$181.07 million) from 1.57 billion yuan a year earlier, it said in a Shanghai stock exchange statement yesterday. China Eastern, the nation's third-biggest carrier, had a loss of 212 million yuan, it said in a separate statement. Neither company provided any further figures under international accounting standards.

Both airlines' passenger numbers fell after snowstorms in February and an earthquake in May forced the cancellation of hundreds of flights and the first drop in China air travel since the 2003 SARS outbreak. Higher fuel prices and the global economic slowdown will also have an impact "over the coming several months or even longer," Kong Dong, chairman of Air China, said in an e-mailed statement.

"There's much more bad news ahead than good news," said Kelvin Lau, an analyst at Daiwa Institute of Research in Hong Kong. "For the full year, a rebound in traffic demand in the fourth quarter won't be enough to compensate the losses so far."

Surging fuel prices and traffic disruptions have caused all five airlines listed in Shanghai to plunge more than 70 percent this year. The country's big three airlines have also all dropped more than 66 percent in Hong Kong trading.

The decline has helped cause Air China to plunge from first to fourth among the world's biggest carriers by market value sine June. Singapore Airlines Ltd, which has tried to buy a stake in China Eastern, is now top of the list, ahead of Southwest Airlines Co and Lufthansa AG, Bloomberg News said.

The price of fuel doubled in the year ended June in Singapore trading and hit a record US$181.85 a barrel on July 3. It has since slid 26 percent in line with falling oil prices. 

The yuan appreciated 6.6 percent against the United States dollar in the first half, easing the burden of higher fuel bills, by cutting the value of the airlines' dollar-denominated debts. China Southern Airlines Co, the nation's biggest carrier, posted a first-half profit of 847 million yuan after making a 2.64 billion yuan currency gain.

Air China is the most affected by rising fuel costs among Chinese carriers, as 45 percent of its passenger traffic, as measured by revenue-kilometers, is on international flights, including services to Hong Kong and Macau. That compares with 37 percent for China Eastern and 17 percent for China Southern.

Chinese airlines pay market prices for fuel used on overseas flights and subsidized rates for domestic trips.

(Shanghai Daily August 27, 2008)