Air China's 2013 profit suffers due to overcapacity, but long-term goals push 14% growth in 2014

Air China, like most of its domestic peers, remains focused on the long term outcome of China becoming the world's largest aviation market. It is the short term that is challenging.

Domestic economic growth lags the targets set for aviation under previously stronger years. Airport slots remain in short supply and competition is fierce amongst China's airlines, even though the majority of capacity is from state-owned carriers.

The response has been to grow as space becomes available, not as demand requires. This helps satisfy national objectives, where any increase in throughput makes a larger economic contribution than would capacity discipline designed to boost a carrier's financial position.

The outcome of these seemingly conflicting goals is that Air China has performed well in difficult conditions. Its 2013 load factor held up while yields decreased 9%, some of this offset by a change in accounting. Top level results show a 51% decrease in group operating profit to RMB4.1 billion (USD785 million), a 4.2% operating margin, helped along by forex gains. Although 2014 ASK growth will slow compared to previous years, it is still high at 14% overall, driven by 9% domestic growth, 22% international growth and 12% regional growth.