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Eastern Airlines expects big loss

By Qian Yanfeng (China Daily)
Updated: 2008-10-14 10:18

China Eastern Airlines, one of the three largest carriers in China, said it expected to have a big net loss in the first nine months of this year due to shrinking traffic demand and higher domestic jet fuel prices.

In an earnings preview filed with the Shanghai Stock Exchange on Saturday, the airline blamed the projected loss on sliding market demand in the third quarter as well as significantly increased costs due to the fuel price hike effective from July 1.

The airline also said with the current global economic woes, it did not expect traffic demand to rebound any time soon.

Monthly operation statistics from the carrier show that its passenger load factor fell below 70 percent in August, an almost 9 percent drop year-on-year. Its revenue for passenger kilometers also fell more than 25 percent year-on-year.

Luo Zhuping, board secretary of China Eastern, told China Daily that the slowdown in the global economy is obviously dragging down traffic demand in the aviation industry, which is currently undergoing the most challenging period in the past three decades.

Although China cut its domestic jet fuel price by 570 yuan per ton from October 1 in response to the skidding international crude oil price, Luo said the drop in fuel costs is in fact not something encouraging.

"The recent plunge in the crude oil price shows that market demand is falling and the world economy is entering a recession. In turn, business activities will cool down and people will be more careful about what they spend. The outlook might be even gloomier," Luo said.

Another two airlines, Air China and China Southern Airlines, have both reported declining traffic demand in August. Air China registered a 13 percent drop year-on-year in its passenger load factor, while China Southern reported an 8.7 percent reduction over the same period.

Li Shurong, an analyst at Shenyin Wanguo Securities, said the recent cut in both the jet fuel price and bank interest rates may help major airlines cut some of their costs while reducing their overseas debts. But the situation has been complicated by the ongoing financial crisis, which is sure to result in soft market demand.