China Eastern Air Quickens Growth to 10% on Overseas Travel

China Eastern Airlines Corp. (670), the nation’s second-largest carrier by passengers, will accelerate capacity growth in the second half to 10 percent as it adds new planes and boosts international services.

Expansion will focus on overseas routes after a 19 percent increase in nationwide outbound passenger numbers in the first half, Zeng Yongchao, an executive vice president, said in an interview yesterday in Hong Kong. The Shanghai-based airline expanded passenger capacity 4.6 percent through June.

“We did pretty well in the traditional peak July and August,” Zeng said. He didn’t elaborate. The carrier rose to post the second-biggest gain among the 17 stocks in the Bloomberg Asia-Pacific Airlines Index (BPRAIRL) today.

The airline has boosted international load factors 5 percentage points this year, compared with flat figures at Air China Ltd. (601111) and China Southern Airlines Co. (1055), because of a recovery in demand on Japan flights following last year’s earthquake, rising international leisure travel and an upgraded long-haul fleet, according to Jefferies Group Inc. The rise also helped the carrier post the smallest drop in first-half profit among the nation’s big three airlines.

“They can absorb the extra capacity,” said Kelvin Lau, a Hong Kong-based Daiwa Securities Group Inc. analyst. “Doing well in the peak summer is a positive sign.”

A320s, 737s

China Eastern will receive 21 new planes in the second half, Zeng said, which will include narrow-body Airbus SAS A320s, Boeing Co. (BA) 737, as well as twin-aisle A330s. Its growth plans in the period are “slightly higher” than Air China’s and China Southern’s, Lau said.

China Eastern rose 1.3 percent to HK$2.36 at close of trading in Hong Kong today. Air China rose 0.7 percent while China Southern gained 0.9 percent. All three carriers have fallen more than 30 percent in the past year.

The planes arriving in the second half of this year will help boost China Eastern’s capital expenditure to 12.6 billion yuan ($2 billion) from about 8 billion yuan in the first half, according to a company presentation.

The company will add another 47 planes next year and it is confident of absorbing the capacity because of rising overseas travel and increasing demand in western part of China, Zeng said.

China’s nationwide domestic market expanded 9 percent in July, compared with a 7.8 percent increase in June, according to the International Air Transportation Association.

China Eastern also plans to reduce the number of freighter type at its cargo unit to pare losses, said Company Secretary James Wang. The freight operations’ losses widened to 400 million yuan in the first half from 250 million yuan a year earlier. Net income fell 65 percent to 806.9 million because of higher fuel costs and currency losses.

The airline hasn’t seen any obvious rebound in air-cargo demand, Wang said.

To contact the reporter on this story: Jasmine Wang in Hong Kong at Jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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