China's economic slowdown hitting airline profits: CAPA
Published: 23 Jul 2008
China's economic growth eased more than market expectations in the second quarter, amid rising inflation, slowing exports and a strengthening currency.
GDP expanded by 10.1 percent in the second quarter – an easing from the 10.6 percent pace of the first quarter – and below market expectations of a 10.3 percent increase. Inflation is hovering just under eight percent and the A-share market is down 48 percent this year (although profit forecasts remain strong).
Demand for China's goods is slowing, with export growth easing to 17.7 percent in Jun-08 (compared with +28.1 percent in May-08 and 21.9 percent for the first half). Exports are expected to be under pressure for the remainder of the year, as the US economy weakens and Japan and Europe also slow.
Part of the pain is self-inflicted, as preparations for next month's Olympic Games slow air travel, but China is inevitably impacted by the slowdown in its prime export markets.
An economic slowdown would be further bad news for the Chinese airline sector already struggling under higher fuel prices.
China's big three carriers' shares have all slumped more than 60 percent this year in Hong Kong trading on concerns that rising fuel prices and slower growth may hit profits. Chinese airlines' combined passenger numbers fell 3.8 percent last month, with first-half numbers rising 5.4 percent to 91.8 million.
The CAAC reports the national aviation sector (airports, airlines and related companies) posted a US$542 million profit in the first half of 2008, down 23 percent year-on-year, despite revenue growth of 15 percent. The CAAC declined to provide a reason for the fall, or a full-year outlook.
The recent actions of some airlines, including route cuts by China Eastern and China Southern (and the latter's 10 percent cut in executive salaries) indicates the industry is bracing for rough conditions. Simply hoping that strong traffic growth rates will return after the Olympics (and the associated easing of security/visas) is not a strategy going forward, particularly in a heightened cost environment.
(Analysis by Centre for Asia Pacific Aviation)
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