Air China profit misses analyst expectations, shares slump

Shanghai

AIR China Ltd's shares fell sharply on Wednesday after the carrier reported an annual profit that fell short of analysts' forecasts due to higher-than-expected operating costs.

The flag carrier's Hong Kong shares dipped as much as 7.4 per cent in their worst day since early February, while its Shanghai shares dropped nearly 5 per cent.

Air China said late on Tuesday that 2017 net profit rose 6.3 per cent to 7.24 billion yuan (S$1.5 billion), marking its strongest profit growth since 2011. However, it fell below a 9.22 billion yuan average estimate from 17 analysts in a Thomson Reuters poll. Revenue rose 7.7 per cent to 121.4 billion yuan.

The earnings were "a disappointment to the market", Bocom International analyst Geoffrey Cheng said. "Fuel cost, aircraft and engine operating lease expenses, and repair and maintenance costs surprised us on the upside." The company said fuel costs jumped 29.2 per cent to 6.42 billion yuan, contributing to a 15 per cent rise in operating expenses.

Air China's passenger yield fell 0.45 per cent in 2017, even though passenger numbers were up 5.2 per cent. Luo Yong, Air China's managing director for marketing, said the firm had raised ticket prices across international and domestic routes, but was being impacted by excess capacity on certain routes.

Air China's board secretary Zhou Feng said the firm was positive on the cargo market, adding that he did not expect fears of a brewing US-China trade war to impact air cargo demand. Cargo revenue jumped 23.5 per cent last year. REUTERS