China Southern Airlines profit boosted by domestic growth, yuan

China Southern Airlines last year sold part of its stock to American Airlines as part of a 'long-term relationship'
AFP

Shanghai (AFP) – China Southern Airlines, Asia’s largest carrier, said net profit jumped 18 percent last year thanks to an increased focus on profitable domestic routes and a stronger Chinese currency.

Net profit hit 5.96 billion yuan ($950 million) on an 11 percent increase in revenue to 127 billion yuan, the Guangzhou-based airline said in a filing late Monday to the Hong Kong stock exchange, where it is listed.

Sales from domestic routes, which make up three-quarters of the company’s passenger revenue, grew 10.3 percent as China continued to post solid economic growth, the company said.

International revenue increased 9.14 percent as the world economy picks up strength.

“In 2017, (against) the background of the global economic recovery, China civil aviation’s international and domestic markets witnessed rapid growth,” the filing said.

The stronger yuan — which rose more than six percent against the greenback in 2017 — also helped by making it less expensive for the carrier to repay dollar-denominated debt incurred via aircraft purchases. 

Shares in the firm initially jumped early Tuesday but by late morning was down at HK$8.72, though its Shanghai-listed stock was up 0.10 percent to 10.06 yuan.

The country’s top three government-controlled airlines — including flag-carrier Air China and Shanghai-based China Eastern — have renewed their focus on the booming domestic market after previously expanding overseas routes.

China is now the world’s second-largest aviation market, and increasing demand for air travel among the growing middle class is expected to push it past the United States as the top market in the years ahead. 

China Southern doubled its domestic passenger flight capacity growth to eight percent in 2017, while almost halving the pace of international expansion to 14 percent.

Last year, American Airlines, the world largest carrier by scheduled passengers, bought $200 million worth of China Southern stock, the first step in a planned “long-term relationship” between the two.

The purchase gave American 8.83 percent of China Southern’s Hong Kong-listed shares.

The tie-up will allow American to tap into China’s rapidly growing market, while boosting China Southern’s ambitions of raising its global profile, including in the United States.

Air China and China Eastern are expected to release their earnings later in the week.

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