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UPDATE 1-Global expansion lifts Air China above domestic rivals
August 27, 2013 / 11:44 AM / 4 years ago

UPDATE 1-Global expansion lifts Air China above domestic rivals

(Adds background on Air China’s global expansion)

* Air China poised to beat rivals due to overseas push

* Passenger yields on int‘l routes exceed domestic routes

* Other Chinese airlines eyeing more foreign destinations

BEIJING, Aug 27 (Reuters) - Air China Ltd is poised to emerge as the best performer among China’s big carriers in a slow first half of the year, benefiting from a rapid expansion to foreign destinations that now account for 40 percent of its revenue.

Over the last three years, China’s flagship carrier has launched at least 18 international routes including destinations such as Geneva, Houston, Mumbai and Okinawa, increasing its overseas flights by more than 20 percent.

That has insulated Air China somewhat from a slowing domestic economy that is hammering rivals’ profits, industry observers say.

“Airlines had to cut domestic fares aggressively to compete for passengers,” said Yu Nan, an analyst with Haitong Securities in Shanghai. “Pricing on the international routes has held up better than domestic routes, especially long-haul routes to the United States.”

Air China, a Star Alliance member, is capitalizing on China’s outbound travelers, whose number increased by around 75 percent during the period 2009 to 2012, official data shows.

The airline is the biggest carrier between China and Europe, beating Lufthansa AG, British Airways and Air France-KLM SA in terms of flights, according to Air China marketing director He Zhigang.

On Aug. 9, Air China started a daily service between Chongqing in China’s southwest and San Francisco with a short stopover in Beijing, the only carrier in the world flying that route. A month earlier, it opened a direct route between Beijing and Houston with four flights a week.

During January-June, passenger yields on international routes remained unchanged from a year earlier, compared with a 15.1 percent fall for domestic flights, company data show. The yield measures the average fare paid per mile, per passenger.

China Southern Airlines Co Ltd’s first-half earnings were down nearly a third according to Chinese accounting standards, with yields on international routes outdoing domestic services.

From January to June, Air China made 1.12 billion yuan ($183 million) net income by Chinese accounting standards, up 7.3 percent from a year earlier.

China Eastern Airlines Corp Ltd and smaller rival Hainan Airlines Co Ltd are scheduled to release first-half results later this week.

Cathay Pacific, 30 percent owned by Air China, booked a HK$24 million ($3.1 million) net income for the first six months of the year, reversing a HK$929 million net loss for the same period last year.

Air China isn’t the only domestic carrier looking to flex its muscles overseas. Shanghai-based China Eastern and Guangzhou-based China Southern, which make about 30 percent and 19 percent of their sales outside of China respectively, are also expanding international services.

Air China’s Hong Kong-listed shares closed up 0.19 percent at HK$5.2 ahead of the release of its first half earnings, leading a 0.59 percent fall of the Hang Seng Index.

($1 = 7.7556 Hong Kong dollars)

$1 = 6.1225 Chinese yuan Reporting by Fang Yan and Matthew Miller in BEIJING; Editing by Mark Potter

Our Standards:The Thomson Reuters Trust Principles.
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