China faces tough operating outlook

SYDNEY (Centre for Asia Pacific Aviation) - China Southern Airlines warned the market it expects to report a loss in 2005 due to surging oil prices and intense domestic competition. 

It follows a profit warning from China Eastern Airlines that profits in 2005 would be slashed by over 50%. The earnings pressure comes despite soaring demand and also reflects increasing costs following the complex consolidation process in China’s aviation industry.

The challenging environment is expected to persist in 2006. Hong Kong’s Dragonair stated last week that fuel is again the “wild card” in 2006 and the airline will “do all we can” to control other costs and generate more revenue with the aim of delivering overall growth.

Meanwhile, Cathay Pacific CEO, Philip Chen, expects competitive pressure to intensify in 2006 and called on staff to “fight for every market”. In an in-house magazine article, Mr Chen recently stated, “it will not be an easy ride [in 2006]. The already competitive environment in which we operate is set to intensify. [Profit] margins are already being eroded and that means we have to work aggressively to meet cost and productivity targets”.

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