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China Southern Proift May Slump on Weak Travel Demand

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China Southern Says Profit May Slump 50% on Weak Travel Demand
Passengers board a China Southern Airlines Co. airplane at Beijing Capital International Airport in Beijing, China. Photographer: Nelson Ching/Bloomberg

July 11 (Bloomberg) -- China Southern Airlines Co., the nation’s biggest carrier by passengers, said first-half profit may fall more than 50 percent because of slowing economic growth and higher jetfuel prices.

Profit will drop from 2.76 billion yuan ($433 million) a year earlier, the Guangzhou-based company said in a statement yesterday. The weakening of the Chinese currency against the U.S. dollar also caused foreign exchange losses, it said.

China Southern filled a smaller percentage of seats in the first five months than a year earlier as economic growth slowed, damping travel demand. The nation’s gross domestic product may have expanded 7.7 percent in the second quarter from a year earlier, down from 8.1 percent in the prior three months, according to the median estimate in a Bloomberg News survey of economists before data due July 13.

“China Southern has the greatest domestic exposure” among the country’s top three carriers, said Timothy Ross, an analyst with Credit Suisse AG. It “will feel the slowing growth in demand most acutely.”

The carrier rose 1.2 percent to HK$3.52 at close of Hong Kong trading, after earlier dropping as much as 2.6 percent. Air China Ltd. gained 1.1 percent while China Eastern Airlines Corp. fell 1.2 percent.

Credit Suisse said in a separate note to clients that it expects China Southern’s first-half profit to slump 98 percent to 46 million yuan as earnings are affected by a 13 percent jump in domestic fuel costs. The carrier’s profit in the first-quarter fell 74 percent.

China has allowed its currency to weaken this year amid slowing growth and Europe’s turmoil. The yuan fell 0.88 percent from April through June, the biggest quarterly decline since a dollar peg ended in 2005. Chinese airlines typically hold dollar-denominated debts.

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

To contact the editor responsible for this story: Vipin V. Nair at vnair12@bloomberg.net

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