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Southern Airlines dives into the red

By Hui Ching-hoo (China Daily)
Updated: 2009-04-16 07:48

China Southern Airlines Co passenger airplanes parked at Beijing Airport. [Bloomberg News]

China Southern Airlines Co swung to a record loss of 4.82 billion-yuan in 2008 from a profit of 1.83 billion-yuan in 2007 and said it remains confident for this year despite a challenging outlook.

The Guangzhou-based carrier said the losses were mainly due to weaker passenger demand, cost pressure resulting from higher domestic oil prices, and impairment losses on its fixed assets.

The company said operating expenses in 2008 rose sharply compared with the mediocre increase in operating revenue.

During the period, operating expenses rose 16.6 percent to 61.76 billion yuan. In contrast, the company's operating revenue rose just 1.6 percent to 55.28 billion yuan.

Related readings:  China Southern Airlines sets up office in Taiwan  Southern Airlines forecasts loss for 2008  China Southern's parent gets 3b yuan govt funding  China Southern invests in northeastern hub

Passenger load factor fell by 0.7 percentage points to 73.8 percent, while passenger yield remained unchanged at 0.61 yuan.

Passenger revenue from the Chinese mainland - which accounts for 83 percent of the total passenger revenue in 2008 - advanced by 2.8 percent to 41 billion yuan.

However, passenger revenue from Hong Kong, Macao and Taiwan fell 11.4 percent to 952 million yuan during the period.

China Southern Airlines Chairman Si Xianmin yesterday said the carrier's debt ratio still remains high despite the 3-billion-yuan fund infusion from the central government.

"The fund infusion only lightened the company's debt ratio by 2 to 3 percentage points. That was far from being enough," he said. "We will continue to ask for further financial assistance from the authorities," he said.

The airline plans to spend 15.8 billion yuan this year to expand its fleet size to 375 from 348.

China Southern will also delay the purchases of A380 Airbus and Boeing 787 due to the unfavorable market conditions. It has already initiated talks with Boeing for delaying the delivery of cargo aircraft, Si said.

Though international oil prices have fallen by $100 per barrel from last year, Si said the company could not gain much as international routes account for less than 10 percent of its overall business.

The airline is also planning to restructure its fleet in three to five years and dispose of some of its older aircraft.

Shares of China Southern Airlines yesterday closed at HK$1.91, up 2.68 percent.