Profits Soar at Top Three Airlines

China’s top three state-owned airlines posted higher operating profits in the first quarter of 2018 on a stronger yuan, with analysts expecting the momentum to continue now that Beijing has liberalized the ticket pricing mechanism.

Air China Ltd. posted an operating profit of 2.6 billion yuan ($408 million) for the three months through March — a more than 69% increase from the same period of the previous year, the airline said in its quarterly report.

China Southern Airlines Co. Ltd. saw its operating profit jump over 90% to 2.5 billion yuan, while that of China Eastern Airlines Corp. Ltd. almost doubled to 828 million yuan, according to the carriers’ respective filings.

The trio’s strong profit growth coincides with the upward momentum in their net profits and revenues.

Air China, for example, posted a net profit of 2.63 billion yuan and revenue of 31.6 billion yuan, which expanded more than 79% and 9% respectively.

The Chinese flag carrier cited a stronger yuan as the main factor for its robust performance, while market watchers expect this factor will continue to come into play this year even as fuel prices have significantly risen.

The crude oil benchmark WTI increased from around $50 in early 2017 to $60 early this year, while the Chinese yuan was up nearly 8% against the greenback, from roughly 6.8 yuan per dollar early last year to 6.3 yuan a dollar early this year.

“The boon that came with the renminbi appreciation has offset rising crude costs,” industry analyst Lin Zhijie told Caixin.

The three airlines’ robust operating profits in the first quarter marked a reversal from 2017. In their annual reports, the trio cited rising fuel prices and competition from high-speed railways as major obstacles.

Looking ahead, the analyst said the three airlines’ prospects look good now that the new ticket pricing liberalization has taken effect.

Rolled out in January, the new policy gave airlines the right for the first time to set their own prices on some of the country’s busiest air routes, such as flights between Beijing and Shanghai.

It is still not clear how much the fares on these major routes will rise, but given the rising air traffic demand, the policy change will “definitely be a boon” to the carriers, Lin said.

Contact reporter Mo Yelin (yelinmo@caixin.com)