Air China, China Eastern and China Southern plot continued growth despite lower profits

China's Big 3 carriers - Air China, China Eastern and China Southern - are operationally performing well, posting 1H2012 operating profits that are down from recent years but well above 2008 when fuel prices were lower. While globally a sound result that many peers would be pleased with, the carriers are fretting over local dynamics with a mixed outlook. The relative slowdown in China's economy is seeing capacity outstrip demand, although this is expected to improve later in 2012 and 2013 with a possible government stimulus.

Premium traffic and frequent flyer revenue are typically up, but so too are labour costs, rising with wage increases. Room for productivity gains is large, although the focus for the remainder of 2012 and 2013 is double-digit capacity growth. Outside of the operating area, a growing concern are large exchange losses as the yuan depreciates against the US dollar, sharply reducing profits.