Fuel costs hit Air China 2011 profits

Fuel costs hit Air China

Air China saw an operating profit of RMB6.26 billion (US$1 billion) in 2011, a year-on-year decrease of 42.7%, as jet fuel cost shot up by 44%.

Turnover was RMB98.41billion,up 19.3% on the year, mainly on the back of a strong domestic market. Operating expenses were RMB92.15 billion, a year-on-year increase of 28.77%.

According to Reuters, the carrier said it had no plans to cancel orders from Airbus, and is planning to expand capacity by 8% on domestic routes and 12 on international routes this year. Beijing has been threatening to withhold permission for up to US$14 billion of Airbus orders in China in retalliation for European emissions trading scheme.

Air China says, “The market conditions for the aviation industry in 2011 were very complicated. Some prominent characteristics include the relatively rapid growth in the domestic air passenger market, continuing recession in the international air passenger market and significant decline in air cargo operations.”

The carrier says, “The Group have strengthened operation management, adopted an active stance towards market changes, consolidated cost advantages and continued to improve service quality.

Passenger revenue was RMB83.51 billion, a year-on-year increase of 22.56%. Cargo revenue was RMB9.83 billion, a year-on-year decline of 2.37%. The growth in passenger revenue in 2011 was mainly due to steady growth in domestic passenger market, plus the consolidation of promising results of Shenzhen Airlines.

Air China says, “Operating expenses increased by 28.8% to RMB92.15 billion, up from RMB71.56 billion reported in the same period in 2010. Jet fuel cost, which remained the single largest cost for the Group, increased by 44% year-on-year and accounted for 37.7% of the operating expenses. The sharp increase in jet fuel costs was primarily due to the continuous increase in international fuel prices and more fuel consumption resulting from the increase in flight hours.”

During the Period, the Group carried a total of 69.7 million passengers, a year-on-year increase of 16.1%. Passenger capacity, measured by Available Seat Kilometers (ASK), rose by 14.8% to 151.59 billion. Capacity for domestic, international and regional routes increased by 17.8%, 9.2% and 10.6% respectively.

Overall passenger traffic, measured by Revenue Passenger Kilometers (RPK), increased by 16.9% to 123.50 billion. Traffic on domestic, international and regional routes increased by 21.9%, 7.6% and 9.7% respectively. Passenger load factor improved to 81.5%, a year-on-year increase of 1.44 percentage points. Yield per RPK was RMB0.68, up by 6.3% over 2010.
The carrier says that demand  in the troubled air cargo market has continued to fall since the second quarter last year. “During the Period, cargo capacity, measured by Available Freight Ton Kilometers (AFTK), increased by 4.2% to 8.2 billion. Cargo traffic, measured by Revenue Freight Ton Kilometers (RFTK), increased by 0.1% to 4.9 billion. Cargo and mail load factor was 59.3%, a year-on-year decrease of 2.42 percentage points. Cargo yield was RMB1.79, down by 3.2% year-on-year.
“In 2012, the steady and continuous growth in the Chinese economy will bring new opportunities in the aviation industry. However, internal and external factors, including the lack of growth momentum in the European and American economies, the accelerated structural consolidation in the Chinese economy, the increasingly challenging domestic and international economic landscape, resource limitations (including airspace, slot constraints, infrastructure and manpower resources) and the high operating cost of our core business will generate new challenges and greater pressure for the Company,” said Wang Changshun, chairman of Air China.

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