- Currency losses balloon 24 times, crimping profit growth
- Results highlight challenges to Chinese airlines' expansion
China Eastern Airlines Corp.’s foreign-exchange losses surged about 24 times last year, as the dollar gained and the yuan fell just as Chinese airlines were expanding international capacity.
The losses ballooned to 5 billion yuan ($772 million) last year from 202 million yuan in 2014, China Eastern said in a Shanghai stock exchange filing Wednesday. Net income at the nation’s second-largest carrier by passengers rose 33 percent to 4.5 billion yuan in 2015, according to Chinese accounting standards, the company said.
The yuan plunged 4.5 percent last year after a shock devaluation by China’s central bank in August, crimping Chinese carriers’ ability to reap the cost benefits of declining crude oil prices. The companies, unlike most overseas peers, don’t hedge against big swings in fuel prices, making it easier for them to take advantage of reduced operating expanses and expand internationally.
The results underscore the tricky task ahead for the carriers, which must juggle growing air travel demand at home and intense regional competition. There’s also the prospect of more yuan volatility with Chinese leaders coming under pressure to devalue the currency as the world’s second-largest economy slows.
China Eastern’s fuel costs fell 33 percent last year to 20.3 billion yuan, the company said. Sales rose 4.6 percent to 93.8 billion yuan. Capacity increased 13.2 percent, led by that of international routes, which expanded 24.3 percent. The airline carried nearly 12 percent more passengers last year, totaling 93.8 million.
(An earlier version of this story was corrected to say losses surged 24 times over last year in first deck headline and first paragraph.)