China Southern Airlines expects 1H loss as capacity outstrips demand amid economy re-ordering

China Southern Airlines on 11-Jul-2014 projected a rare first half net loss of RMB0.9-1.1 billion (USD145-177 million). This adds to growing weak performance in Asia's airline sector. With China sneezing, is the rest of Asia in for a cold? While there may be more declining performances across greater China and broader Asia, they are not inherently linked. Thai Airways is suffering from its national political environment and Malaysia Airlines from weakened traffic following its MH370 tragedy (which even Singapore Airlines is feeling as Chinese tourists avoid Southeast Asia).

China Southern's challenges are equally nuanced. While shifting exchange rates continue to impact the carrier, its core business has been caught in China's economic re-ordering. Economic growth is slowing but China Southern is having to adhere to state-led capacity growth plans established when the economy was stronger. China Southern has been unable to revise capacity at its discretion, resulting in over-supply that is causing load factors and yields to decline. A net 1H2014 loss follows 1H2013's net profit but operating loss, further highlighting shakiness.