Issue No. 734
China's New Reality
During the second quarter of 2019, China’s Big Three state-owned airlines—Air China, China Eastern, and China Southern—all earned profits at the operating level. So did Hainan Airlines, Juneyao Airlines, and Spring Airlines. But three of these six publicly-traded carriers—China Eastern, China Southern, and Hainan—simultaneously reported red ink at the net level, which includes interest costs, income taxes, and in some cases foreign exchange-related losses. All six meanwhile, faced a new set of realities in the Chinese airline market, including big changes in Beijing and Hong Kong, a major downturn in cargo demand, and perhaps most importantly: slowing passenger demand.
Just listen to Travelsky. What’s Travelsky? It’s a state-owned technology company that provides most Chinese airlines with their internal reservation systems while also holding exclusive rights on air ticket distribution via China-based travel agencies. While reporting its own Q2 earnings, the company said “downward pressure in the economy” led to y/y passenger volume growth of less than 8% during the first half of 2019. That’s still relatively strong but substantially lower than the 11% growth witnessed in the same period a year earlier. Travelsky went on to question the likelihood of hitting the government’s full-year 2019 growth forecast of 11%.
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