Air China Falls Most in Two Months on Yields: Hong Kong Mover

Air China Ltd. (753), the nation’s biggest carrier by market value, fell the most in two months in Hong Kong trading after declining yields prompted UBS AG to cut its earnings forecast for the airline.

The Beijing-based carrier fell 6.4 percent, the biggest drop since April 5, to close at HK$5.70 in Hong Kong trading. China Eastern Airlines Corp (670), based in Shanghai, dropped 3.7 percent to HK$2.35. The city’s benchmark Hang Seng Index rose 0.2 percent.

Air China’s passenger yields, a measure of the average price travelers pay, fell 7 percent in April even as traffic rose 9.6 percent, UBS analysts led by Richard Wei wrote in a note today, citing the company’s management. UBS cut its 2013 earnings estimate for the carrier by 30 percent, citing sluggish business travel and international passenger traffic to Europe.

“This is mainly due to industry oversupply,” the analysts said in the note. “We are concerned about the weak business traffic, which has not shown a material pick up due to the slower-than-expected economic recovery in China.”

Air China (601111) and unit Shenzhen Airlines ordered 100 Airbus A320 planes last month.

UBS lowered Air China’s rating to sell from buy and reduced its share-price estimate to HK$5.37 from HK$8.10 as the analysts estimated the carrier’s passenger yields may drop 1.4 percent this year, compared with an earlier forecast for 1.6 percent growth. Earnings per share may be 0.29 yuan, compared with a previous forecast of 0.41 yuan, UBS said.

The slowdown of business traffic is likely to continue and may affect industry growth, Citigroup Inc. analysts led by Vivian Tao said in a note on June 7.

China’s industrial production rose by a less-than-forecast 9.2 percent from a year earlier in May, and factory-gate prices fell for a 15th month, National Bureau of Statistics data showed yesterday. Export gains were at a 10-month low, and imports dropped after a crackdown on fake trade invoices.

Air China and China Eastern’s domestic shares are closed for trading today as China’s financial markets are closed through June 12 for the Dragon Boat Festival holiday.

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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