China Southern Airlines’ profit falls by half amid high oil prices, increased competition

Louise Moon
China Southern Airlines’ profit falls by half amid high oil prices, increased competition

China Southern Airlines’ net profit fell by more than a half last year as high oil prices, intensifying competition and currency weakness took a toll on business.

Net profit for the country’s largest carrier by fleet size slumped by 51.43 per cent from the previous year to 2.89 billion yuan (US$430 million), according to a stock exchange filing after markets closed on Monday. Analysts polled by Bloomberg had expected a net profit of 3.88 billion yuan, which would have been a 34.87 per cent drop.

The company’s revenue rose by 12.38 per cent to 143.62 billion yuan, slightly short of the 144.58 billion forecast by analysts.

The Guangzhou-based carrier, which boasts over 800 passenger and cargo aircraft, cited currency weakness, high crude oil prices, an increasingly competitive market and the rapid expansion of China’s high-speed rail network as reasons for the decline.

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In the filing, China Southern blamed the US-China trade war for exchange rate depreciation and fluctuations in global crude oil prices, which were the main drags on its business. Neither is expected to vanish in the next year.

“Fluctuations in crude oil prices have led to changes in the company’s fuel costs,” which form a main part of the company’s operating cost, it said in the filing. Operating expenses jumped 21 per cent compared to the previous year.

Meanwhile, competition is increasing.

According to data from the China Railway Corporation, rail mileage of China’s high-speed network will reach 175,000 kilometres by 2025, up from 131,000 kilometres in 2018. China Southern’s flight routes that overlap with the railway networks will be affected, it said.

Competition from an increasing number of domestic low-cost carriers will also continue to intensify, said the company, which counts Xiamen Airlines as one of its eight subsidiaries.

Though China Southern flies to 40 other countries and regions, almost 90 per cent of its flights are internal, and just under three quarters of overall revenue comes from domestic passengers.

China Southern’s shares finished 2.84 per cent higher at HK$6.87 in Hong Kong before the results were released. In Shanghai they rose 2.86 per cent to 8.27 yuan.

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