Financial results of China’s ‘Big Three’ airlines reflect the dire state they have been in during 2020. Despite an almost full recovery to pre-Covid traffic and passenger numbers by October – followed by another slump -, China Eastern Airlines, China Southern Airlines, and Air China have reported a combined net loss for 2020 of almost RMB/¥ 40 billion. Let’s have a look by airline.

Air China:
Air China recorded a ¥ -15.816 billion net loss, compared to a ¥ 7.263 billion profit in 2019. The operating loss was ¥ -11.168 billion versus a ¥ 14.642 billion profit. Revenues were almost halved to ¥ 69.503 billion from ¥ 136.180 billion, with only cargo revenues up by some ¥ 2.8 billion to ¥ 8.553 billion. Revenues in mainland China were down to ¥ 48.535 billion from ¥ 85.907 billion, while international revenues were reduced to ¥ 16.517 billion from 41.268 billion.

Air China took a ¥ 439.7 million impairment loss on property, plants, and equipment. At the end of the year, it had total liabilities of ¥ 200.256 billion, interest-bearing debts of ¥ 160.991 billion, reserves of ¥ 66.064 billion but unutilized bank facilities of ¥ 122.242 billion which the airline believes is adequate to fulfill its debt obligations and capital expenditures.

Looking at Group capacity (which includes Air China, Shenzhen Airlines, Kunming Airlines, Air Macau, Beijing Airlines, Dalian Airlines, and Air China Inner Mongolia), mainland China ATKs were down by 19.15 percent to 135.5 million, Hong Kong, Macau, and Taiwan by -82.7 percent to 1.866 million, and international by 82.15 percent to 18.639 million. International traffic in revenue per passenger kilometers (RPKs) was down by 86.43 percent to 11.753 million and mainland China by 29.72 percent to 97.117 million. Cargo tons were also down, by -22.3 percent, to 1.113 billion. The airline said it strictly followed prevention plans to prevent the spreading of Covid, with each employee going into quarantine an average of 2.6 times for 36 days.

Air China Group currently has a fleet of 707 aircraft. In 2020, it took delivery of two Airbus A350-900s, eight A320neo’s, one A321neo, and three Comac ARJ21s. A total of six Boeing 737NGs and A319/A320ceo’s were phased out. The Group plans to take delivery of 48 A320/A321neo’s this year and eight in 2022, five more A350s this year, eight in 2022, and five in 2023. It doesn’t mention the final of fifteen 787-9s on direct order with Boeing, not the status of its MAX 8s. Sixteen -8s have been delivered with thirteen more on order, but the return to service depends on approval from the Chinese regulators.
Comac will deliver six ARJ21s this year, eight in 2022, and nine in 2023. So while 97 new aircraft will join Air China until 2024, 38 will be retired including twenty 737NGs.

As it embarked on its 14th Five-Year-Plan, Air China is optimistic that as vaccinations continue and the pandemic is brought under control, demand in China in 2021 will rise again. Despite offering huge market potential, the recovery of international traffic will be delayed. While this is not immediately reflected in its aircraft deliveries, Air China says it will slow down the introduction of new wide-body aircraft.

It also notes that competition on the domestic market is expected to become tough: “From the perspective of the domestic market, as the domestic airline market has basically bottomed out, various airlines will shift certain international market capacities to the domestic market, which will intensify the fierce competition in the domestic market.”

Air China has parked all its sixteen MAX 8s, waiting for Chinese regulators to approve the return into service of the type. (Boeing)

China Eastern Airlines:
On March 31, China Eastern reported a net loss of ¥ -11.836 billion compared to a ¥ 3.192 billion profit in the previous year. The operating loss was ¥ -13.8 billion versus R¥ 10 billion profit. Total revenues plummeted by 49.7 percent to ¥ 64.425 billion, with again cargo contributing positively by ¥ 3.225 billion with what it calls ‘unconventional flights.’ Revenues from ancillaries remained at a higher level than was to be expected from the drop in passenger numbers.

Overall, RPKs dropped by 51.6 percent to 107.253 million. The biggest impact was on China Eastern’s regional services, with RPKs down by -90.9 percent, followed by international at -85.6 percent. Domestic RPKs were at -32.7 percent, thanks to the swift recovery in Q3. Overall capacity was down by -43.7 percent.

China Eastern slashed its costs by ¥ 1.14 billion, by reducing operating and procurement costs. Interestingly, the airline also closely looked at weight savings on its aircraft, thereby reducing fuel consumption and fuel costs.
Of the 33 aircraft planned for delivery, actually only two joined the fleet during 2020. Capital expenditures were reduced from the planned ¥ 24.020 billion to ¥ 9.226 billion. The airline bolstered liquidity to ¥ 7.651 billion from ¥ 1.350 billion the previous year by issuing ultra-short-term and corporate bonds, raising ¥ 79.2 billion.

For 2021, China Eastern forecasts a Capex of $17.953 billion, of which $14.298 billion will be on aircraft and engines. It intends to take delivery of 27 Airbus A320neo-family aircraft, four A350-900s, five Boeing 787-9s.
Comac will deliver six ARJ21s to China Eastern’s One-Two-Three (OTT) subsidiary, while the arrival of the first C919 to OTT is also slated for later this year. China Eastern confirmed delivery of the first batch of five C919s on March 1. This makes 43, with six A320ceo’s and three 737NGs to leave the fleet. China Eastern now has a fleet of 725 aircraft.

Mutation of the Covid-virus and the difference in the progress of vaccinations make 2021 a difficult year to read, China Eastern says. The situation in China seems to give the least worries but remains vigilant as new cases keep popping up. The airline continues to raise funds through multiple sources to optimize its debt structure and secure cash flow.

China Eastern-subsidiary OTT started Comac ARJ21-operations on December 28, 2020. (Comac)

China Southern Airlines:
The third big Chinese airline Group, China Southern, recorded a net loss of ¥ -11.827 billion compared to a ¥ 3.084 billion profit in 2019. The operating loss was ¥ -11.864 billion compared to a ¥ 10.838 billion profit. Revenues were ¥ 92.561 billion (154.322 billion), of which ¥ 87.027 billion generated from passenger and cargo traffic. Passenger revenues almost halved to ¥ 70.534 billion, while cargo revenues almost doubled to ¥ 16.493 billion thanks to 8.431 cargo-only services.

On its domestic services, China Southern recorded a drop in revenues to ¥ 57.793 billion from ¥ 101.955 billion. International revenues were down to ¥ 12.490 billion from ¥ 34.110 billion. During Q2 and Q3, it was the most active operator of the Airbus A380 as it continued services to the US, Australia, and Europe (Amsterdam). Hong Kong, Macau, and Taiwan revenues collapsed to just ¥ 251 million from 2.437 billion the previous year. During the year, China Southern accelerated the construction of its (international) hubs at Guangzhou and the new Beijing Daxing International Airport.  

The airline has ¥ 241.252 billion in consolidated liabilities and ¥ 56.696 in net current liabilities. Borrowings stood at ¥ 78.233 billion by the end of December, with another ¥ 121.213 billion in lease liabilities. Its fleet and related equipment were listed at ¥208.943 billion. China Southern took a ¥ 3.959 billion impairment on aging aircraft, plus ¥ 3.277 billion on the rest of its fleet, and ¥ 682 million on leased aircraft and equipment. It hasn’t provided an update on its fleet plans, except for saying that it adjusted five ‘structures’ including fleet as it adjusts development plans. Airbus data show that the airline has twelve more A350-900s on order, plus 34 Boeing MAX.

The Group successfully raised ¥ 32 billion in additional funds with the public issuance of convertible bonds which it thinks will be sufficient to lay a ‘solid foundation’ for development. It had banking facilities worth ¥ 315.4 billion by December, of which ¥ 228.1 billion was still undrawn.

China Southern, too, is looking at 2021 as a most uncertain year. The focus will be on domestic traffic first, on which it says: “We will increase inputs in domestic transportation capacity, and strengthen the construction of hubs, including Guangzhou hub and Urumqi hub, with a focus on the Beijing Daxing hub. We will optimize routes and flights, and ensure that the capacity matches the market as a way to maximize the overall marginal contribution. We will make every effort to increase the time slots and strive for the increase of international flights.” Part of this is an active, three-year safety campaign to construct a safety system as the key point within the airline.  

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