Low-cost airlines in China? - Orient Aviation

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BUSINESS ROUND-UP
THAI profit
up 427%;
better to come
Thai Airways International
(THAI) has re
ported a 427% jump in
profit for the 2001-02 financial
year, a result that will
produce dividends for THAI
shareholders for the first time
since the onset of the Asian
economic crisis in 1997. The
airline made an annual profit
of 10.18 billion baht (US$233.3
million) to September 30, compared
to a profit of 1.93 billion
baht a year earlier. Analysts
noted, however, that profits
slipped at the carrier in the
last quarter of the year, a trend
they explained by rising fuel
prices, threats of Middle East
conflict and a weaker national
currency.
THAI chairman, Thanong
Bidaya, said the airline
would pay a dividend of 1.50
baht per share, a recommendation
that was approved
at THAI’s December board
meeting. Thanong added that
2002-2003 looked even more
promising for THAI, with forward
bookings at high levels
and no visible fallout for the
carrier after the Bali bomb
blasts in October.
THAI is expected to proceed
with a partial privatisation
of its government held
shareholding in March. The
sell off of 23% of the Thai
Government’s 93% equity in
THAI has been postponed
several times in the last five
years for reasons ranging
from poor profits, lack of
management transparency,
the Asian economic crisis and
the slump (in 1997-98) in the
value of the baht.
EVA upgrades
forecast for
second time
In its second upward revision
for the current year,
EVA Air, the island nation’s
second international carrier,
has upgraded its profit
forecast by 56% to NT$2.54
billion (US$73.13 million) for
the fiscal year. Earlier, the
EVA Air: has revised its profit forecast upwards for the second
time this year
airline had predicted a profit
of NT$1.63 billion, based on an
operating margin of 6.3%. In
a statement from the airline in
December, the company said:
“The outlook for passenger
revenue remained steady
and is at the same level as
previously forecast. However,
forecast cargo revenue for the
fourth quarter [of the fiscal
year] has been increased by
15% to NT$8.5 billion. For this
reason, revenue for the year
has been revised upward by
2% to NT$64.16 billion. Cumulative
revenue for the first
10 months of EVA’s fiscal year
increased 21.9%, to NT$52.9
billion, compared to the same
period in 2001.
Fiscal U-turn
for Air China
Air China, now a merged
group of three carriers, has
reversed its profit forecast
for the fiscal year. In a statement
published in China’s
state-owned news organisation,
Xinhua, officials at the
Beijing-based carrier said revenue
in 2002 would be lower
than the 23.2 billion yuan
(US$2.8 billion) in 2001.
These comments contradicted
reports in October,
after the airline was merged
with two other Mainland
government carriers, China
Southwest Airlines and
China National Aviation
Corp., that revenue would
increase in 2002 by 1.9 billion
yuan to 25 billion yuan compared
to 2001. The merged
carrier has a fleet of 118 aircraft
and currently employs
23,000 staff. In January, the
Construction Bank of China
granted the airline an 18 billion
line of credit, a facility also
provided to China Eastern
Airlines (see below).
Air NZ boosts
profit prediction
After a nightmare two
years, Air New Zealand
(Air NZ) surprised the market
in January by stating
it was upgrading its profit
forecast for the full year to
June 30 from NZ$200 million
to NZ$230 million (US$118.5
million). In a statement to the
country’s stock exchange, the
flag carrier said the forecast
had been increased by the
rise in the value of the NZ$,
the lively performance of its
low-cost domestic subsidiary,
Freedom Air, and better
than expected business conditions
across the country. However
Air NZ chief executive,
Ralph Norris, cautioned
that the profit prediction, “if
achieved, would only represent
a 5.9% pre-tax return on
assets”.
Skymark battered
in brutal market
Japan low-cost airline,
Skymark, has announced its
losses for the year to October
31, 2002, had increased substantially
to 1.09 billion yen
(US$9.02 million) compared
to 988 million yen for the same
period in 2001. The carrier
had its profit wings shredded
by an onslaught of discount
ticket sales from Japan’s major
domestic carriers in a market
already suffering from economic
paralysis. However, the
company said revenue for the
year had increased by 14% to
15.4 billion yen.
China Eastern
wins credit line
Shanghai-based China
Eastern Airlines (CEA)
has secured an 18.5 billion
yuan (US$223.1 million) credit
line from Mainland bank, the
China Construction Bank,
a decision that brought credit
available to the carrier of up
to 60 billion yuan.
The airline will start taking
delivery of 18 new aircraft
(five Boeing 737s, three Airbus
A340s and 10 Airbus A320s)
in 2003. Another five A320s
and two A340s are expected
to arrive at China Eastern
in 2004.
CEA’s company secretary,
Luo Zhuping, said the
airplanes were ordered years
ago and were already in the
carrier’s budget plan. He said
they had been paying for them
in instalments and would
have taken delivery of them
whether or not they had the
new credit line.
KAL seeks
market money
At press time, South Korean
flag carrier, Korean
Air (KAL), was in continuing
negotiations to finalise the issue
of US$300 million in asset
backed securities to assist in
funding its 2003 operations.
The ABS fund-raising is expected
to be co-managed by
the Korea Development
Bank (KBS) and Societe
Generale Belgique. In January,
KAL announced its profit
for the current fiscal year
would increase by 20% as
Koreans took more holidays,
taking advantage of a working
week reduced by half a day to
five days a week, and declining
fuel costs.
12 Orient Aviation, February 2003