* Net of 944.5 mln yuan beat analysts forecast of 725.6 mln
* High fuel costs, weaker yuan hurt airlines
* Lower fuel may buoy Q3 profit
* Shares down 16 pct this year vs Hang Seng up 7 pct
(Adds comments, details)
HONG KONG, Aug 28 Air China, the
country's flagship airline, reported a smaller-than-expected 77
percent fall in interim net profit with analysts warning that
operating conditions remain challenging though the second half.
Global airlines are grappling with high fuel costs and slack
demand due to slowed economies, sending major players including
Cathay Pacific and Qantas Airways
into the red in their latest results.
Air China, Asia's second-largest by market
value, on Tuesday posted a net profit of 944.5 million yuan
($148.58 million) for the first six months which ended in June,
against 4.06 billion yuan a year earlier, it said in a filing to
the Shanghai stock exchange.
The net profit beat an average forecast of 725.6 million
yuan from five analysts polled by Reuters.
Chinese airline results were hit by high prices on fuel,
which account for about 40 percent of their operating costs, and
a 0.9 percent depreciation in the yuan against the U.S. dollar
in the first half of the year.
Air China's fuel cost rose 12.8 percent to 17.8 billion yuan
and it posted a foreign exchange loss of 341 million yuan versus
a gain of 1.48 billion yuan a year earlier.
Rival China Southern Airlines reported
a 85 percent fall in first half net profit on Monday due to
intense competition amid decelerating demand.
Yet the headwinds that worked against Chinese airlines in
the first six months are gradually abating, said Davin Wu, an
analyst at Credit Suisse.
"With nearly half of its capacity deployed on international
routes, Air China is best positioned to capture the robust
growth anticipated in outbound travel," Wu said.
The recent relaxation of visa policies by the United States,
Japan and South Korea is expected to drive demand for outbound
Air China's passenger traffic in July was up 4 percent to
take growth in the first seven months to 3 percent, yet well off
an average 8 percent rise in 2011.
A recent ticket price hike should also help boost revenue
during the peak season in the third quarter.
The underlying ticket price index for Chinese airlines,
which accounted for half of the industry's global net profit in
2011, rose 3 percent for domestic routes and 6 percent for
international routes in June.
The second half is generally seasonally stronger than the
first for airlines.
But chances for Chinese airlines to see year on year
earnings growth in the second half were low due to high fuel
costs, Barclays said in a research note.
Fierce competition and weak market conditions have forced
global airlines to cut costs, with Australia's Qantas cancelling
orders for 35 Boeing Dreamliner jets after posting its first
full-year net loss in 17 years.
Premium regional carriers, like Cathay Pacific and Singapore
Airlines, were facing more pressure than Air China on
passenger yields as multi-national companies were inclined to
cut or combine trips amid uncertain global economic conditions,
Cathay Pacific made an interim loss of HK$935 million, which
also contributed to the fall in Air China's first half net
profit as Air China has a near 30 percent stake in Cathay.
Shares in Air China have fallen 16 percent this year,
lagging a 7 percent gain on Hong Kong's blue chip Hang Seng
Index or Cathay's 4 percent fall in the same period.
($1 = 6.3568 Chinese yuan)
(Reporting by Alison Leung; editing by Jason Neely)