China air traffic may stay weak till H2 2009 -exec

SHANGHAI (Reuters) - China’s air travel market is likely to remain weak as the global economy falters and may not rebound until the second half of next year, a senior Chinese airline executive said on Thursday.

"Airlines are among the hardest hit by the current global economic downturn and no one knows how much worse it could turn out to be," said a senior executive with China Eastern Airlines 600115.SS0670.HK, one of the country's three biggest carriers.

Passenger volume at China's major carriers, including flag carrier Air China 601111.SS0753.HK and China Southern Airlines 600029.SS1055.HK, the country's largest carrier by fleet size, started to show year-on-year declines in May, marking a reversal for an industry that had seen steady growth in recent years.

Many attributed the initial fall to a devastating earthquake that hit the country’s southwest on May 12.

The decline extended into the next few months, but several industry veterans predicted in June that the market would rebound after the August Beijing Olympics, which curbed air traffic due to heightened airport security checks.

“It seems the forecast was way too optimistic. There is no sign of a warming up in the market now and things may not get any better until the second half of next year,” said the executive, who asked not to be identified.


He added that China’s big domestic airlines may continue to cut back flights on loss-making routes to reduce costs.

China Eastern, China Southern and other carriers have been losing money on some of their long-haul international routes, due in part to a lack of global networks.

The executive declined to provide earnings guidance for China Eastern for the full year, but said the results would undoubtedly be worse than the company had been expecting. China Eastern has not disclosed an earnings forecast for the full year.

The carrier booked a 41.62 million yuan ($6.10 million) net profit in the first half of this year under domestic accounting standards, down 28.5 percent from a year earlier.

“The third quarter was not good. Passenger volume picked up a little during the week-long national holiday in October but was still no match for the boom last year.”

If traffic continues to fall, domestic airlines may file a joint appeal next year to the government for subsidies and tax breaks, the executive added.

Shares of major Chinese carriers, which have plunged in recent months as the stock market tumbled, rebounded on Thursday, lifted by Beijing’s announcement late the previous day of its most aggressive monetary easing this decade, including rate cuts. (For a story click on [nPEK61552])

China Eastern's Shanghai-listed A shares were up 1.36 percent at 4.46 yuan in afternoon trade, while China Southern was up 0.27 percent at 3.69 yuan. That compared with a 0.36 percent drop in the benchmark Shanghai Composite Index .SSEC.

But the executive said the rise in airline stocks would be short-lived if the global economy remained weak.

“(The monetary easing) helped us a little but not much. We may pay less interest on new loans now, but our passengers will not be coming back as long as the economy is weak.”

($1=6.822 Yuan)

Reporting by Fang Yan; Editing by Edmund Klamann