Huge exchange-rate gains helped China's three aviation giants – Air China, China Eastern Airlines and China Southern Airlines – to profit in the first half, more than offsetting cost hikes from soaring fuel prices, according to their half-year reports.

Aggregate exchange-rate earnings exceeded 6.4 billion yuan (935 million US dollars) in the first half. These gains were about triple the first-half net profits of the three, which totaled 2.16 billion yuan.

Analysts attributed the currency gains to the appreciation of the yuan, or Renminbi, in the first half. From January to June, the yuan appreciated 6.5 percent against the US dollar, nearly equivalent to last year's total appreciation.

The three airlines had massive dollar-denominated liabilities, but as the yuan strengthened, it cost them less to settle these liabilities, such as aircraft purchases and leases. This was conducive to paring costs.

The second half might not be as favorable for the carriers, however. Analysts said oil prices, and thus aviation fuel costs, would remain high in the second half, while exchange-rate earnings were expected to decline as the yuan's appreciation would slow.

According to Air China's half-year report released on Wednesday, the carrier's exchange-rate earnings reached 1.9 billion yuan, up 125 percent year on year.

China Eastern and China Southern reported earlier that exchange-rate earnings totaled 1.9 billion yuan and 2.6 billion yuan, up 163 percent and 105 percent year on year, respectively.

But according to their interim reports, the airlines' first-half net profits were dwarfed by their exchange earnings.

The net profits of Air China and China Eastern hit 1.28 billion yuan and 42 million yuan, down 1.38 percent and 28.5 percent, respectively.

However, China Southern's net profit of 848 million yuan was up 368 percent year on year, owing both to exchange-rate gains and a 409 million yuan government subsidy.

Many pressures on industry

Fuel price wasn't the only factor weighing on Chinese airlines in the first half. The economic slowdown, weakening consumer confidence and a series of natural disasters that affected air travel exerted tremendous pressure on the aviation industry, said Air China chairman Kong Dong.

In the first half, Air China's operating income was about 25.8 billion yuan, up 13.26 percent year on year, while operating costs were about 23.1 billion yuan, up 20.73 percent year on year.

The company said its first-half fuel price increased to 7,053 yuan per tonne from 5,260 yuan per tonne a year earlier.

Air China didn't report total first-half fuel costs, but China Eastern and China Southern saw fuel costs hit 8.57 billion yuan and 10.4 billion yuan, up 22.84 percent and 20.8 percent, respectively.

China Eastern and China Southern also saw their costs grow faster than their incomes in the first half, compared with year-earlier levels.

Their operating incomes were 20.8 billion yuan and 27.5 billion yuan, up 6.3 percent and 8.9 percent. Operating costs were 19.7 billion yuan and 25.5 billion yuan, up 13.15 percent and 15.1 percent.

(Xinhua News Agency August 27, 2008)