How Are Avian Flu Concerns Affecting Chinese Airline Stocks? (CEA, ZNH)

Includes: CEA, ZNH
by: Ezra Marbach

Despite concerns about avian flu the stock prices of Chinese airlines remained relatively steady last week. Chinese airlines traded on US stock exchanges include China Southern Airlines (ticker: ZNH) and China Eastern Airlines (ticker: CEA). With the potential for avian flu wreaking havoc on Asia's hotel and airline industry this is somewhat surprising. The following is a short extract from an article in Barron's (subscription required):

"Probably, I'm too complacent, but this is not as severe as people are thinking," says Lan Xue, head of Asia Pacific research for Citigroup in Hong Kong. In fact, Xue believes airline stocks -- major market laggards as fuel prices soared -- are poised to snap back. This isn't a view held by Citi's Asia airline analyst, she notes.

It's certainly true that airlines are underowned by institutions and that earnings will spring higher as jet-fuel prices plateau. Merrill Lynch analyst Paul Dewberry issued Buy ratings recently on Air Asia, Cathay Pacific, China Airlines and EVA Airways. Strong passenger demand has let airlines boost fuel surcharges, Dewberry writes, but at a pace slower than that at which fuel prices have risen. However, the surcharges should catch up next year. If the cargo market turns higher, he argues, Asian airline earnings could rise 16% next year, after falling 30% this year.


ZNH chart.

CEA chart.