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Air China cuts back on capex

By Joey Kwok and Lillian Liu (China Daily)
Updated: 2009-04-22 08:01

Air China, the country's flag carrier, said it will further trim its capital expenditure by up to 30 percent after reporting a turnaround in the first quarter of this year, thanks to the sharp fall in fuel price and extraordinary gain.

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Air China said in Hong Kong that it plans to cut capital spending to between 9 billion and 10 billion yuan this year from 12.9 billion yuan in 2008.

"Our capital expenditure for 2009 will be narrowed down, in response to the overall situation of the industry," chief financial officer Fan Cheng said at a press conference.

But the company also said it will continue to increase capacity this year and has seen signs of improvement in its passenger and cargo businesses.

The airline would take delivery of 27 aircraft this year and return eight to 10 leased aircraft, Chairman Kong Dong told reporters.

An Air China aircraft on the runway at the Beijing Capital International Airport. [Bloomberg News]

Air China is confident that the aviation industry on the mainland will show stronger growth in 2009 than the rest of the world.

The airline's passenger traffic on the mainland in the first quarter increased by 18.9 percent from a year ago, offsetting a 8.2 percent fall in passenger numbers on its international routes.

"If the momentum can sustain, we expect demand (on the mainland) to be quite strong," Fan said.

Analysts predicted that Air China and its two rivals, China Eastern Airlines and China Southern Airlines, would turn profitable this year as domestic air travel rebounds in the first quarter and said the trend could extend through the year.

The global financial crisis, which depressed air traffic, and huge fuel-hedging losses combined to make the three Chinese carriers fall deep into the red in 2008, with Air China reporting a loss for the year of 9.3 billion yuan.

The carrier yesterday said it made a net profit of 981 million yuan in the first quarter of 2009, including an exceptional gain and helped by lower fuel costs.

The gain was achieved after charging for a loss from the 17.5-percent-owned Hong Kong-based unit, Cathay Pacific, Fan said.

Shares of Air China have jumped 46 percent this year, outperforming a 14.5 percent rise on the index for major Chinese companies listed in Hong Kong.

Agencies contributed to the story