30-Jul-2010 12:19 PM

Shanghai Airlines to leave Star Alliance; China Southern expects improved profits: China Share Wrap

The Chinese stock market continued its upward rally for the eighth consecutive day on Thursday, with the Shanghai Composite Index rising 0.6% to reach the highest index close in the past two months. Meanwhile, the Hang Seng Index gained less than 0.1%, while the Hang Seng China Enterprises Index, which tracks H shares of Chinese companies, fell 0.3%.

Shanghai Airlines terminates Star Alliance membership

In key aviation news in the China market yesterday, Shanghai Airlines agreed to terminate its Star Alliance membership by the end of Oct-1010, as a result of its recent merger with China Eastern Airlines, which has agreed to join the SkyTeam Alliance by mid-2011. Shanghai Airlines joined the Star Alliance at the end of 2007, joining Air China in the grouping.

China Eastern’s intention to join SkyTeam is part of the carrier’s plan to become more competitive in the international arena. Other SkyTeam members include Aeroflot, Aeromexico, Air France, Alitalia, Czech Airlines, Delta Air Lines, KLM, Korean Air, Air Europa and Kenya Airways.

The move also foreshadows China Eastern/Shanghai Airlines' further cooperation with SkyTeam counterpart, China Southern. As previously noted by CAPA, the two could provide an effective foil to the aggressively expanding Air China, which is continuing its domestic acquisition spree and strengthening ties with Cathay Pacific.

Attention now turns to Air China (Star Alliance) and Cathay Pacific/Dragonair (oneworld) and whether they will align under one alliance. oneworld currently does not have a Mainland Chinese member, although Cathay/Dragonair provide effective coverage over Hong Kong.

Meanwhile, China Eastern added that its parent company, China Eastern Air Holding Company, will purchase Shanghai Airlines' subsidiaries - an in-flight catering company, an international travel agency and a trading company - to further integrate the two carriers' minor businesses. The two carriers' cargo businesses are also undergoing restructuring to counter the threat of the Cathay Pacific/Air China Shanghai-based cargo JV.

China Southern expecting “over 5000%” increase in net profit in 1H2010

Shares in China Southern Airlines rose to the highest point in almost three months in Hong Kong trading, gaining 3.6% yesterday to close at HKD3.77, after the carrier stated it expects first half net profit to increase by “over 5,000%” from the net profit of CNY38 million (USD5.6 million) in 1H2009. The carrier’s Shanghai-listed shares added 0.3% to close at CNY7.39 yesterday.

The carrier explained: “During the period, the demand for aviation and transportation services increased gradually as a result of rapid domestic economic rebound. The company actively boosted its revenue level by taking advantage of such improved market and achieved the steady growth of its operational efficiency. Further, the net profit attributable to the equity holders of the company for the first half of 2010 was substantially increased, due to the completion of the disposal of its equity interest in MTU Maintenance Zhuhai Co Ltd and a lower base figure for the corresponding period in 2009”.

Asia Pacific selected airlines daily share price movements (% change): 29-Jul-2010