July 29, 2014 / 9:36 AM / 3 years ago

Military drills give China airlines headaches as flights delayed, cancelled

BEIJING, July 29 (Reuters) - Military drills have become a new headache for China Eastern Airlines Corp and other Chinese carriers, causing hundreds of flight delays and cancellations just as they are grappling with a sharp decline in earnings.

In one of the most serious air disruptions yet, authorities issued a red alert on Tuesday, resulting in a near shut down of 20 airports in east China between 2-6 p.m. (0500-1000 GMT). Air traffic capacity could fall by as much as three quarters at Shanghai’s two main airports for the day, they warned.

The military exercises, which political analysts say are larger in scope and duration than in years past, come amid an increase in tensions with Japan and other Asian nations, although the government has called them annual and routine. The delays could affect flights until mid-August, Beijing’s Public Security Bureau said last week.

The drills have the potential to cost airlines millions of dollars, some analysts and industry officials said. But others said the impact may not be that bad as non-cancelled flights would carry more passengers and airlines would not have to offer deep discounts on flights that would normally be less popular.

“China Eastern is affected the most because it based in Shanghai and has more flights to and from nearby cities,” said Gao Liangyu, an analyst at Huatai Securities.

A spokesman for China Eastern said the impact was unclear. The carrier has warned passengers about more flight disruptions ahead especially to and from cities such as Nanjing, Wuhan, Zhengzhou and Qingdao.

Shares in the airlines have so far showed little reaction to the drills. China Eastern’s Shanghai-traded shares have gained 2 percent so far this week, roughly in line with the benchmark index. Air China has gained 3.5 percent and China Southern is up 2.9 percent.

Hit by a sharply weaker yuan that has pushed up costs, China Eastern warned it would make only around 50 million yuan ($8 million) in net profit in the first half, down 93 percent from the same period a year earlier.

Other airlines affected by the drills include China Southern Airlines Co Ltd and Air China Ltd which both operate a large amount of flights out of Shanghai.

Air China has also warned of a large decline in net profit for the first half while China Southern has said it will make a loss. ($1 = 6.1808 Chinese Yuan) (Reporting by Fang Yan and Matthew Miller; Editing by Edwina Gibbs)

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