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China state-controlled airlines, China Eastern Airlines (ticker: CEA), and Air China, announced (WSJ subscription required) FY 2004 earnings results today. US publicly-traded China Eastern provided little information. Details:


FY 2004 Results for China Eastern Airlines:
(all percentage changes and comparisons are year on year, unless stated otherwise, assumes currency conversion of RMB 8.27: US $1)

  • Revenue rose 47% to $2.54 billion.
  • Net profit of $62.2 million, up from a loss of $114.8 million.

FY 2004 Results for Air China:
(all
percentage changes and comparisons are year on year, unless stated
otherwise, assumes currency conversion of RMB 8.27: US $1)

  • Revenue rose 32% to $3.7 billion.
  • Revenue
    passenger kilometers, the number of passengers multiplied by the
    number of kilometers they fly, rose 39%.
  • Total operating costs rose 30% to
    $3.5 billion.
  • Jet fuel accounted for 29% of total operating costs,
    up from 24%.

  • Net profit rose 1400% to $288.8 million.
  • Passenger traffic rose 36% to 24.5 million.
  • Cargo traffic rose 17% to 2.58 billion metric ton kilometers.
  • Air China plans to issue a 10-year bond this year valued at $362.8 million.
  • Air China didn't propose a final dividend, but it plans to distribute 15%-30% of this year's net
    profit to shareholders.
  • Air China holds 69% of Hong Kong-listed China National Aviation Co., a
    holding company that has equity stakes in Hong Kong carrier, Hong
    Kong Dragon Airlines, and Air Macau.
  • Air China also has shares in
    Shenzhen-listed Shandong Airlines and Shenzhen Airlines.
  • Hong Kong's
    dominant airline, Cathay Pacific Airways, has a 10% stake in Air
    China.

Air China President Ma Xulun:

....In 2004, the company had the best performance in its history as measured by all operating indicators.

Gary Zhang, research analyst at Sun Hung Kai Investment Services Limited:

  • China Eastern bought more jet fuel from the international market than Air China.
  • 30% of Air China's jet fuel last year was bought from the international market.
  • Air China did a better job of hedging against the volatility of oil prices.
  • An Air China official told analysts that the company booked a gain of $4.96 million in 2004 from oil-hedging activities.

Comment: Both airlines recovered nicely from the impact of severe acute respiratory syndrome (SARS) in 2003. But Air China admitted it faces challenges such as increasing competition and high jet-fuel costs. No doubt China Eastern shares the same sentiment.

China Eastern Airlines stock market performance:

Cea_412

Source: China airlines flying high; but competition and cost concerns remain (FY2004 earnings)