China Southern Airlines, now with 600 aircraft, has a weak 1H2014 and faces new challenges

In Aug-2014 China Southern Airlines reached a group fleet of 600 aircraft. Asia's largest airline is now about to face a number of new problems, none individually large, but collectively unwelcome: its first direct LCC competition with 9 Air launching at China Southern's home of Guangzhou, pushes from the government for expensive long-haul routes and managing subsidiary Xiamen Airlines' entry into long-haul markets with 787s, the first of which it received on 31-Aug-2014.

The challenges may seem overstated: international routes are still a small fraction of China Southern's capacity while LCC inroads will be gradual. But the impacts can be disproportionately large, and account for the difference between a profit and a loss. These are untested waters for China Southern, and it enters in a weak position having achieved a 1H2014 operating margin of only 1.5%. At the net level, exchange losses pushed the airline into the red.