China Southern Profit Misses Estimates on Lower Airfares

China Southern Airlines Co. (1055), the nation’s biggest carrier by passengers, said first-half profit fell 19 percent as competition with bullet trains and slowing economic growth pushed fares lower.

Net income was 344 million yuan ($56 million) in the six months ended in June, compared with 424 million yuan a year earlier, the carrier said in a filing to the Hong Kong stock exchange today. That compares with the 516 million-yuan median profit estimate of five analysts surveyed by Bloomberg News. Sales fell 1.6 percent to 46.2 billion yuan.

China Southern had an operating loss of 114 million yuan in the period from a profit of 1.77 billion yuan a year earlier. Chinese carriers are discounting fares to lure more passengers amid China’s economic slowdown and competition from high-speed trains.

Shares of China Southern rose 0.7 percent to close at HK$2.92 in Hong Kong trading today before the earnings were announced. The stock has dropped 25 percent this year, compared with a 2.9 percent decline in the benchmark Hang Seng Index.

Passenger yields, a measure of average ticket price, fell 11 percent to 0.59 yuan, according to the statement. China Southern carried 43.8 million passengers, 6.3 percent more from a year earlier, in the first half while it expanded seat capacity by 9.3 percent.

Currency Gains

The carrier posted a 1.52 billion-yuan of foreign exchange gain, compared with a net exchange loss of 314 million yuan a year earlier, as the nation’s currency appreciated 1.5 percent against the U.S. dollar in the period.

China Southern plans to deploy its Airbus SAS A380s on Guangzhou-Sydney route in October. The carrier hasn’t won the right to fly the plane on overseas routes from the nation’s capital Beijing even after receiving the first superjumbo about two years ago. The airline has been mostly using its five A380s for domestic services or on the Guangzhou-Los Angeles route.

The yuan was the best performer in 24 emerging market currencies tracked by Bloomberg in the first half. Chinese carriers benefit from a stronger local currency as it pares the repatriated value of dollar-denominated debts used to buy planes and fuel overseas.

To contact the reporter on this story: Jasmine Wang in Hong Kong at jwang513@bloomberg.net

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

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