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Earnings of major Chinese airlines hit as yuan weakens and fuel costs rise

Shanghai

CHINA'S major carriers saw their net earnings shrink in the third quarter on higher fuel prices and the impact of a weaker yuan, even though demand in the world's number two aviation market remained brisk.

China Southern Airlines, Asia's largest carrier, reported that July-September profit halved to two billion yuan (S$398 million) year-on-year, while flag carrier Air China's profit slumped to 3.5 billion yuan, down nearly 30 per cent.

China Eastern Airlines earned 2.21 billion yuan in the period, a fall of 38 per cent.

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"Due to the rise in oil prices and the depreciation of the yuan against the US dollar, the company's net profit has declined," Air China said.

The yuan has weakened to a decade-low level as it is hit by slowing Chinese economic growth and trade tensions with the United States.

The three airlines have ramped up their presence in the booming domestic market after previously expanding overseas routes, and profits had been growing until the yuan and fuel prices began to bite in the second quarter.

The drag on profits came despite China Southern's revenue in the past three months rising 15.4 per cent to 41.3 billion yuan, while Air China's gained 12.3 per cent on continued demand for domestic and overseas travel, especially during summer.

China is now the world's second-largest aviation market, and increasing demand for air travel among its booming middle class is expected to ultimately push it past the United States.

Last year, American Airlines, the world's largest carrier by scheduled passengers, bought US$200 million worth of China Southern stock, or 8.8 per cent of its Hong Kong-listed shares, to seal a planned "long-term relationship".

The tie-up will allow American to tap into the Chinese market, while boosting China Southern's ambitions of raising its global profile.

China Southern's Shanghai-listed shares gained 1.86 per cent on Wednesday to 6.03 yuan, Air China's rose 3.65 per cent to 7.39 yuan, and China Eastern was up 1.84 per cent to 4.97 yuan. AFP