February 4, 2009 / 1:57 AM / 9 years ago

RPT-UPDATE 2-China Eastern expects industry to recover in H2

(Repeats story from Tuesday)

By Fang Yan

SHANGHAI, Feb 3 (Reuters) - China Eastern Airlines (600115.SS) (0670.HK) has capped its capacity growth in 2009 at 5 percent and hopes to break even in 2010 when the industry recovers, the company’s top executives said on Tuesday.

After years of robust growth, China’s airlines face strong headwinds from falling passenger demand, intensifying competition as the economy slows from the impact of the global financial crisis.

But Liu Shaoyong, newly appointed chairman of China Eastern, one of the three biggest carriers in the country, said domestic air traffic could be on its way to recovery later this year.

“Domestic travel will remain soft in the first half but will start to see some growth in the second half of this year,” Liu told a press conference.

“International routes, however, will show signs of recovery in the first half or even the second half of next year. It has not hit the bottom yet,” he said.

China Eastern said last month it expected to report a “significant” loss for 2008 because of slumping traffic demand and higher fuel prices.

But Liu said the outlook was improving as China Eastern’s risk of incurring more losses from fuel hedging was diminishing and it was also launching cost cutting initiatives.

“In 2009, our goal is to cut losses significantly but chances of making a profit are slim ... we hope to break even in 2010 or make a small profit,” he said.

China Eastern estimated earlier it would suffer a loss of about 6.2 billion yuan ($906 million) through marking down the value of its fuel hedging contracts after the unexpectedly steep drop in global oil prices late last year.

The carrier would receive a 7 billion yuan capital injection from the government in exchange for a placement of new shares to help it stem mounting losses, it said in late December.

COST CUTTING

    China Eastern intends to cancel or delay roughly half the 29 planes it expects to receive from Airbus EAD.FA and Boeing (BA.N) this year, its president Ma Xulun told reporters.

    The company has scrapped several new investment projects, including the establishment of six subsidiaries. It has also scaled back its capacity growth to 5 percent this year from its previous target of 13 percent, Ma and other executives said.

    It also reached an agreement with its partner to cut its 40 percent stake in regional carrier, Joy Air, based in Xi‘an in western China, Ma added.

    Sources had told Reuters the Chinese government was discussing the possibility of brokering a merger of Shanghai-based China Eastern and its smaller peer Shanghai Airlines 600591.SS.

    Liu did not comment directly on the prospect of a merger, but said the airlines themselves had not held any discussions on equity ties so far.

    He added, however, that China Eastern was open to tie-ups and restructuring with other airlines and financial investors.

    The carrier’s subsidiary in the southwestern Yunnan province could possibly become an independent carrier jointly run with the local government, other executives said. ($1=6.844 Yuan) (Reporting by Fang Yan; Editing by Jacqueline Wong)

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