China Eastern 1H profit down 65 pct on slowdown

Associated Press

HONG KONG (AP) — China Eastern Airlines Corp. became the third of China's three major state-owned carriers to report a big drop in earnings after it reported late Thursday first-half profit tumbled 65 percent on slowing demand for air travel, higher jet fuel prices and foreign exchange losses.

The Shanghai-based airline is the latest in a string of big Chinese companies to report disappointing results, highlighting the painful slowdown in the world's second-biggest economy and adding to pressure on Beijing to reverse it.

China Eastern's poor results mirror those reported by rivals Air China and China Southern Airlines earlier this week. The three carriers and a host of other Chinese companies, from tech giants to retailers, had warned earlier this year of unexpectedly steep profit declines. The earnings slump comes as China's authoritarian leaders grapple with economic growth that slowed to a three-year low of 7.6 percent in the second quarter.

The airline said there were "various challenges ahead."

"The air transportation market is subject to further lackluster demand arising from the European debt crisis and the downturn of the U.S. economy, plus the reduced demand from traditional export markets in Asia Pacific region and the slowdown in China's economic growth," it said in a statement.

Profit fell to 806.9 million yuan ($126 million) or 0.07 yuan (1.1 US cents) per share, down from 2.3 billion yuan or 0.2 yuan per share the year before.

While revenue climbed 5 percent, costs also rose. The price of jet fuel, which is the airline's single biggest expense, rose 10 percent. Airport fees, wages, maintenance and finance costs also rose.

The airline lost 228 million yuan, mainly because China's currency weakened slightly against the U.S. dollar. In 2011, it reaped an 818 million yuan gain because of the yuan's strength.

Exchange rate fluctuations are a key factor in determining profitability at Chinese airlines, which have to pay for major costs like aircraft and jet fuel in U.S. dollars. They also have to cover expenses in the currencies of the different countries they operate in.