Air China Q2 net up 29 percent on bouyant air travel

BEIJING Wed Aug 25, 2010 8:07am EDT

BEIJING (Reuters) - Air China (601111.SS) (0753.HK) reported a 29 percent rise in second-quarter earnings on Wednesday as more people took to the skies in the world's fastest growing major aviation market.

The Chinese flag carrier's outlook remains bright for the rest of the year on strong growth in business and leisure travel in the country, which by some estimates has already overtaken Japan as the world's second-largest economy.

"There are some worries out there about a slowing economy. But that has had no impact on airlines so far," said Yu Jianjun of Huatai Securities. "Business and leisure air travel will continue growing at double-digit rates unless there is a major economic downturn, which is very unlikely."

Chinese airlines carried 152 million passengers in the first seven months of this year, up 18.2 percent from the same period last year and nearly matching the 19.7 percent increase for all of 2009, according to official data.

Air China's second-quarter earnings reached 2.52 billion yuan under Chinese accounting standards, compared with a restated 1.95 billion a year earlier, beating an average forecast of 2.2 billion from three analysts polled by Reuters.

The company's fastest area of growth during the first half was its cargo and mail business, which saw gross profit margins rise to 25.6 percent, the company said in a statement.

Earlier this year, Air China Chairman Kong Dong gave an upbeat outlook for its 2010 performance.

Rival China Eastern Airlines (600115.SS)(0670.HK) had projected a more than 50 percent jump in first-half earnings thanks to the World Expo, which is drawing millions of visitors to its home base in Shanghai, while China Southern Airlines (600029.SS) (1055.HK) saw its net profit jump more 50-fold.

Beijing-based Air China is keen to expand in key gateway cities in the country. Earlier in the year, it launched a cargo venture with Cathay Pacific Airways Ltd (0293.HK) in Shanghai, where rival China Eastern dominates.

Air China also struck a deal to raise its stake in Shenzhen Airlines to 51 percent from 25 percent, giving it a strong position in China Southern's main market.

"These are strategic moves. And they would no doubt help Air China maintain its leading position versus its domestic rivals," said an analyst with Haitong Securities.

Before the results, Air China's Hong Kong-listed shares ended down 1.8 percent. Its A-shares closed down 2.2 percent, tracking a 2 percent drop in the benchmark index .SSEC.

(Editing by Don Durfee and David Holmes)

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