November 1, 2019 / 7:02 AM / 12 days ago

Chinese airlines hit by slides in demand on routes to Hong Kong, Taiwan

Nov 1 (Reuters) - China’s three biggest airlines saw double-digit declines in demand on their so-called regional routes in September, as protests in Hong Kong and Beijing’s travel restrictions to Taiwan took their toll.

Two of them, China Southern Airlines and China Eastern Airlines have also aggressively cut capacity on those routes to Hong Kong, Macau and Taiwan - routes which account for about 5% of their revenue.

Traffic on those routes first turned negative in August and then dropped sharply in September.

China Eastern said demand on its regional routes, as measured by revenue passenger kilometres, tumbled by nearly a quarter in September from the same period a year earlier, while China Southern slid 21.1% and Air China fell 15.7%.

Capacity, measured by available seat kilometres, slid 16.7% in September for China Southern and 11.3% for China Eastern, data from the companies showed. But Air China only fell 3%.

Passenger yields for regional routes may drop 10% next year, analysts quoted China Eastern management as saying on an earnings conference call this week. China Eastern did not immediately respond to a request for comment.

Months-long pro-democracy protests in Hong Kong have shown no signs of abating and China stopped issuing individual travel permits for Taiwan in August as tensions grew with the self-ruled island it regards as a wayward province.

The airlines were, however, able to offset that pain and third-quarter profits climbed from a year earlier, helped in part by the abolishment of a civil aviation airport development fee, analysts said.

Net profit attributable to shareholders jumped 17.2% for China Southern to 2.4 billion yuan ($340 million), while China Eastern also made 2.4 billion yuan, up 9.8%. Air China saw a 4.4% rise to 3.6 billion yuan.

Separately, analysts quoted China Eastern and China Southern executives as saying they were extending aircraft leases for Airbus planes amid the global grounding of the Boeing 737 MAX following two fatal crashes that killed 346 people.

The extensions are until next year or the year after, said Luya You, transportation analyst at BOCOM International. The airlines did not immediately respond to requests for comment.

Boeing has said it hopes to have approval from the U.S. Federal Aviation Administration by the end of the year for the 737 MAX to return to service.

China was the first country to ground the plane and You said she believed it could take “another two to three months, about a quarter” after U.S. authorities grant approval before China’s aviation regulator does so as well. ($1 = 7.0414 Chinese yuan) (Reporting by Stella Qiu in Beijing and Jamie Freed in Sydney; Editing by Edwina Gibbs)

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