Carriers ride out rough weather

09:34, March 04, 2011      

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Analysts are optimistic that domestic carriers will ride out the year strong, despite International Air Transport Association's (IATA) downgrade of the industry outlook for 2011 due to rising oil prices.

Wednesday the IATA lowered its forecast for the global aviation industry's net profits for 2011 to $8.6 billion from last December's $9.1 billion. That would be a 46 percent fall in net profits compared to the $16 billion earned by the industry in 2010, the association said Wednesday.

For the Asia-Pacific region, net profits are expected to reach $3.7 billion, down from $7.6 billion in 2010 and also down from the previously forecast of $4.6 billion for 2011.

IATA attributed the downgrade to oil prices now being driven by speculation on geopolitical events in the Middle East rather than strengthening economic growth.

However, industry watchers said Chinese carriers would not be hit hard due to fuel surcharges and rocketing domestic demand.

Last year, the profits of domestic carriers were 35.1 billion yuan ($5.33 billion), accounting for 60 percent of global carriers.

"The fuel surcharge may cover 70 percent of the cost for the carriers brought by rising oil prices,"Chen Xin, an analyst from Everbright Securities, Thursday told the Global Times.

Last month, several domestic airlines raised fuel surcharges from 70 yuan ($10.65) to 90 yuan ($13.69) per passenger for routes longer than 800 kilometers, and from 40 yuan ($6.09) to 50 yuan ($7.61) for less than 800 kilometers.

The move is in response to fuel price hikes made by the National Development and Reform Commission, which increased fuel prices by 350 yuan ($53.24) per metric ton last month.

Moreover, carriers such as Air China and China Eastern are doing fuel hedging that may help them cut costs, Chen added. A hedge is a position established in one market in an attempt to offset exposure to price changes or fluctuations. According to Chen, Air China has bought 50 percent this way.

Changjiang Securities' analyst Shen Xiaofeng Thursday said rising demand on international routes would guarantee carriers will grow as "demand moves years ahead of supply."

Source: Global Times
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