Caixin
Nov 02, 2021 08:25 PM
BUSINESS

Soaring Fuel Costs, Lingering Covid Impact Sink Chinese Airlines’ Earnings

A China Southern aircraft takes off from Guangzhou Baiyun International Airport in South China’s Guangdong province on July 15. Photo: VCG
A China Southern aircraft takes off from Guangzhou Baiyun International Airport in South China’s Guangdong province on July 15. Photo: VCG

China’s “Big Four” airline companies reported heavy losses in the third quarter of 2021, as they suffered from spiraling jet fuel prices and lingering pandemic effects.

In the three months through September, Air China Ltd., China Eastern Airlines Corp. Ltd., China Southern Airlines Co. Ltd. and Hainan Airlines Holding Co. Ltd. — all listed on the Shanghai Stock Exchange — reported net losses attributable to ordinary shareholders of 3.5 billion yuan ($546.6 million), 2.9 billion yuan, 1.4 billion yuan and 2.6 billion yuan, respectively, even as their revenues grew, according to their earnings reports.

In the same period of 2020, net losses for Air China, China Eastern Airlines and Hainan Airlines were 670 million yuan, 563 million yuan and 3.8 billion yuan, respectively, while China Southern Airlines reported a net profit of 711 million yuan, according to data collector Hithink RoyalFlush Information Network Co. Ltd.

The four carriers attributed their performance to weak travel demand caused by the spread of Covid-19, with Air China and China Eastern Airlines also factoring in increased fuel costs and exchange rate fluctuations.

Jet fuel prices have emerged as a particular source of pain. Just as the airline industry scrambles to recover from the public health crisis, higher oil prices mean the cost of jet fuel in China is likely to jump as much as 18% month-on-month in November to 5,500 yuan per metric ton, according to a report by Guotai Junan Securities.

In an effort to offset losses caused by the fuel price hike, smaller players Yunnan Lucky Air Co. Ltd. and Ruili Airlines Co. Ltd. will resume adding fuel surcharge fees to their domestic flight prices from Nov. 5, a source from online travel agency Qunar.com told Caixin.

According to industry rules jointly issued in 2015 by the National Development and Reform Commission and the Civil Aviation Administration of China (CAAC), airline companies are allowed to collect fuel surcharge fees within a range set by the government for domestic flights only when the price of jet fuel hits 5,000 yuan per metric ton. Airlines can charge such fees independently for international flights after gaining approval from the CAAC.

“(Domestic airlines) are waiting to see if the three major carriers (referring to Air China, China Eastern Airlines and China Southern Airlines) will take action (to resume charging fuel surcharge fees),” an industry insider told Caixin on condition of anonymity, adding that a resumption would cause a greater loss of passengers for small and mid-sized airline companies than for bigger ones.

In January 2019, many domestic airlines moved to cancel fuel surcharge fees for domestic flights due to a drop in the price of oil.

Contact reporter Ding Yi (yiding@caixin.com) and editor Heather Mowbray (heathermowbray@caixin.com)

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