China’s Big Three airlines Air China, China Southern, and China Eastern all suffered higher losses in the first six months of 2022. They are the direct consequence of the zero-tolerance Covid-policy that resulted in continued lockdowns in multiple cities across China after rising Omicron infections, which significantly slowed down the recovery of domestic travel. Already in Q1, the airlines suffered higher losses. Lockdowns China push Big Three into deeper losses.
Air China
Air China reported a half-year net loss of RMB -19.437 billion compared to RMB -6.781 billion in the same period of 2021. The operating loss was RMB -16.973 billion versus RMB -6.043 billion. Total revenues were down to RMB 23.953 billion from RMB 37.664 billion. Passenger revenues halved to RMB 15.104 billion from RMB 30.895 billion, with domestic revenues reflecting the lockdowns with a 53 percent drop to RMB 13.590 billion. The airline carried 17.4 million passengers at a 60.4 percent load factor. Domestic traffic was 47 percent down on HY1 2021, international 24.6 percent, and regional routes 37 percent. Yields per passenger revenue kilometer (RPK) were up 6.4 percent to RMB 0.56. RPKs themselves were 54.1 percent down on last year to 26.8 million.
Cargo and mail revenues were higher to RMB 6.880 billion from RMB 4.575 billion, led by a 62 percent increase in international revenues to RMB 5.875 billion. Air China operated 9.851 cargo flights with passenger aircraft, up 24.1 percent from last year.
Despite overall lower operating expenses at RMB 42.373 billion versus RMB 45.996 billion, Air China felt the effect of higher fuel prices. Fuel costs were up 4.3 percent to RMB 10.4 billion, even at a 37 percent lower consumption. Cash and cash equivalents stood at RMB 18.6 billion, up from RMB 8.5 billion. Interest-bearing liabilities totaled RMB 20.8 billion.
For HY2, Air China remains cautious about the recovery: “The national economy has been improving for a long time, the prevention and control situation is generally stable, the foundation for industrial recovery is more solid, and the development of freight logistics under the support of national policies ushers in a new period of strategic opportunities. At the same time, there is still a risk of market demand fluctuations caused by the rebound of the local epidemic.” Cargo remains a key opportunity to generate the best revenues.
Air China’s fleet plan for 2022 through 2024 includes the delivery of 105 new aircraft. (Air China)
Air China Group ended the first half year with a combined fleet of 748 aircraft, having introduced eight Airbus A321neo’s, seven A320neo’s, and one A350-900. It phased out fourteen aircraft, including three A330s, five Boeing 737-800s, three -900s, and three A319s. Air China itself operated 472 aircraft, introduced thirteen new and phased out eight ones.
The Group fleet plan includes the delivery of 27 A320neo family aircraft this year, five in 2023, and 31 in 2024. Nine A350s should have joined Air China by the end of 2022 and another five in 2023. COMAC should deliver ten ARJ21s this year and nine each in the next two years. From 2023, Air China will induct the first of 96 A320neo aircraft that were ordered in July for itself and its subsidiary Shenzhen Airkines.
China Southern Airlines
China Southern Airlines reported an RMB -11.896 billion net loss for HY1 compared to RMB -3.967 billion. The operating loss was RMB -10.564 billion, up from RMB -3.057 billion. Total revenues were down to RMB 40.817 billion from RMB 51.576 billion, of which RMB 26.732 came from passengers (2021: 39.691 billion) and RMB 11.143 billion from cargo and mail (RMB 8.866 billion).
Revenue passenger kilometers were down by 42.6 percent to 48.3 million, with domestic RPKs down by 43 percent to 46.3 million. The number of passengers carried dropped by 45.7 percent to 29.7 million, of which 29.3 million (-45.8 percent) were on domestic routes as the airline “resolutely implemented the responsibilities for pandemic prevention and control, and continued to improve the pandemic prevention and control working mechanism.” China Southern carried just 294.000 passengers on international routes, down from 335K in 2021. The average load factor on all flights was 64.4 percent, down from 73.7 percent, but as at Air China, yields were better at RMB 0.54 (+14.9 percent).
China Southern carried 665K tonnes of cargo, of which 342K were on international routes (-1.43 percent) and 320.5K in domestic services (-17.1 percent). International cargo generated RMB 10.3 billion in revenues, 30.1 percent more than in HY1 2021.
Total operating expenses were 5.5 percent lower as CS operated fewer flights and ended at RMB 53.3 billion, but flight operation expenses or fuel costs were 40 percent up to RMB 23.2 billion. Net cash flow from operating activities remained positive at RMB 1.654 billion but was down by one-third on HY1 2021. By the end of June, China Southern had RMB 352.6 billion in credit facilities, of which RMB 249 billion was undrawn. Group liabilities stood at RMB 249.8 billion.
The airline group, which includes China Southern, Xiamen Airlines, Shantou Airlines, Zhuhai Airlines, Guizhou Airlines, Chongqing Airlines, and Henan Airlines, ended June with 880 aircraft as it took delivery of six A320neo family aircraft and one ARJ21 while disposing of two Airbus A380s, two 747 freighters, and one 737NG. The 96 A320neo family aircraft ordered in July will be delivered between 2024 and 2027.
In its outlook for HY2, China Southern is concerned about the effects of rising fuel prices as forecasted by IATA but will do everything to keep costs under control. “The Group will accelerate the implementation of its development strategies and intensify its reform efforts. We will improve the operating quality in the Beijing hub, actively strive for high-quality peak hours, and consolidate and enhance our market control in the Greater Bay Area”, it says in the HY1 report.
China Eastern Airlines
China Eastern Airlines was severely hit by the lockdown of its main hub, Shanghai, at the end of March. Operations at Pudong and Hongqiao Airports came virtually to a standstill, but following the relaxation of Covid restrictions in June, there has been a gradual recovery in the number of flights and passengers.
This came too late to save China Eastern’s HY1, which ended with an RMB -19.974 billion net loss, up from RMB -5.398 billion in HY1 2021. The operating loss was RMB -15.716 billion compared to RMB -5.473 billion last year. Total revenues dropped to RMB 19.354 billion from RMB 34.710 billion. At RMB 13.9 billion, passenger revenues were down by more than half, but cargo revenues were almost static at RMB 3.9 billion.
China Eastern carried 18.7 million passengers during the period, down from 44.4 million last year. Of this, 18.5 million were domestic passengers, while international accounted for only 98.000 passengers. The average passenger load factor was 60.6 percent. The cargo business carried 310K tonnes, down 33 percent on last year. Expenses were down to RMB 36.9 billion from RMB 43.2 billion, with fuel costs also lower to RMB 9.0 billion from RMB 9.7 billion.
In HY1, the group raised RMB 64.1 billion in short-term debentures, medium-term notes, and long-term bank loans. Current liabilities stood at RMB 104 billion, RMB 65.8 billion higher than current assets. This has been the reason for the Board to do a detailed review of the group’s going concern ability. Based on sufficient banking facilities, China Eastern’s sound credit standing, and expected net cash inflows in the next twelve months, “the Board believes that the Group has sufficient source of financing to enable it to operate, as well as to meet its liabilities as and when they become due, and to support its the capital expenditures in the foreseeable future of not less than twelve months starting from the period end of the financial statements.” The airline is preparing to issue RMB 15 billion in new, non-public shares in May.
China Eastern plans to introduce 111 new aircraft by the end of 2024, including five COMAC C919s. (China Eastern)
The China Eastern Group ended June with 755 aircraft, including five business jets. It took delivery of one A350-900 and retired two 737NGs and one A320. Another two A350s are to be delivered in HY2, plus nineteen A320neo family aircraft, ten ARJ21s, and the first COMAC C919 which has been long overdue. For next year, China Eastern expects 37 deliveries, of which four C919s, plus 41 in 2024 (see table). The 100 A320neo aircraft ordered in July will be delivered in 2024 through 2027. The plan still excludes the Boeing MAX.
China Eastern remains worried about the Covid-virus and the effects it will have on travel, combined with the high fuel prices: “The situation of epidemic prevention and control is still severe and complicated and the price of crude oil and other energy resources remained at a high level due to the geopolitical conflicts, creating severe challenges for industry recovery. In the second half of 2022, the Group will adhere to the principle of seeking progress while maintaining stability, and coordinating the execution of various tasks such as safe operation, epidemic prevention and control, resumption of work and production, refined management, major projects and reform and social responsibility.”
