Largest Three Airlines See Operating Profits Fly Low In 2017

China’s three largest state-owned airlines reported a huge drop in operating profits last year, as fuel prices rose and competition from high-speed railways grew.

Air China Ltd. posted an operating profit of 11.8 billion yuan ($1.87 billion), a 32.9% decrease year-on-year, the largest slump among the trio.

It was followed by China Southern Airlines Co. Ltd.’s 27.4% drop and China Eastern Airlines Corp. Ltd.’s 25% dip, to 9.4 billion yuan and 9.2 billion yuan respectively, according to the airlines’ filings to the Hong Kong Stock Exchange this week.

The weaker operating profits came despite the three airlines all seeing growth in their net profits and revenues.

Air China, for example, posted a net profit of 8.6 billion yuan in 2017, up 13.2% from the previous year, while revenue expanded 7.7% to 124 billion yuan.

The airlines cited rising fuel costs and the country’s expanding railway networks as factors that have eaten into their operating profits.

“Jet fuel costs, which accounted for 50.64% of flight operation expenses, increased by 34.02% from 23.8 billion yuan in 2016 to 31.9 billion yuan in 2017, as a result of the increase in jet fuel prices and the increase in hours flown by 8.05% in 2017 as compared with 2016,” China Southern Airlines said in the filing.

Though fuel prices are expected to stay high this year, analysts said new central government policies could be a boon to the industry.

In September, the Civil Aviation Administration of China rolled out rules to cut the number of flights in major airports partly to improve the country’s notoriously poor on-time departure rate.

In January, the regulators allowed airlines more freedom to set prices on some of the country’s busiest air routes.

According to industry analyst Lin Zhijie, market demand is still very strong as more Chinese are flying, and the government’s measures mean that operators could increase prices to offset part of the fuel costs.

An earlier version of this story incorrectly identified China Eastern in the third paragraph.

Contact reporter Mo Yelin (yelinmo@caixin.com)