April 15, 2014 / 11:12 AM / 4 years ago

China Southern warns of Q1 losses due to weaker yuan

BEIJING, April 15 (Reuters) - China Southern Airlines , China’s biggest airline by fleet size, has warned it will incur a net loss of between 300-350 million yuan ($46-$56 million) in the first quarter due to foreign exchange losses.

The airline said in a statement to the Shanghai Stock Exchange on Tuesday that a fall in the yuan had increased its costs, pushing it into the red in the first three months of the year.

The warning makes China Southern the latest Chinese airline to suffer from a fluctuating yuan, a phenomenon still novel in China where authorities for years ensured the currency experienced minimal daily volatility to protect local firms.

As China tries to re-make its economy to allow market forces to play a bigger role in a bid to reduce inefficient investment, the government wants to gradually relax its grip on the yuan. Last month, the central bank doubled the yuan’s maximum daily trading band to 2 percent.

The yuan has fallen 2.8 percent so far this year, compared with a 2.8 percent rise in 2013. Although the sizes of the moves are not big, analysts say they are still a challenge for Chinese firms, which are not used to hedging currencies.

Other airlines including China’s flagship carrier Air China Ltd and Hainan Airlines Co Ltd have also warned earnings will suffer from a weaker yuan.

Rising currency risks come at a time when Chinese carriers are already grappling with half-empty premier cabins due to the government’s austerity drive.

$1 = 6.2191 Chinese Yuan Reporting by Koh Gui Qing; Editing by Mark Potter

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