April 4, 2018 / 3:20 AM / 3 months ago

China Eastern Airlines says trade war may prompt route adjustments

HONG KONG(Reuters) - China Eastern Airlines Corp Ltd (600115.SS) (0670.HK) said a brewing trade war between China and the United States could prompt it to adjust capacity and frequency on associated routes in the expectation that it may impact passenger travel and cargo.

The logo of China Eastern Airlines is shown on a panel at a check-in counter at Hong Kong Airport in Hong Kong, China April 4, 2018. REUTERS/Bobby Yip

China’s second largest carrier by passenger numbers said it had set up a group to study the issue. The Trump administration on Tuesday imposed 25 percent tariffs on some 1,300 Chinese products while China has put tariffs on U.S fruit and nuts.

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Chief Executive Ma Xulun said at a news conference on Wednesday that the trade war could have a “certain impact” on passenger and cargo business.

“We will make some adjustment to our fleet if passenger numbers fall on China-U.S. routes, for example by switching the Boeing 777 to the Airbus 330-200. If the impact is more severe, we may make adjustments to airline frequency,” said Chief Marketing Officer Dong Bo.

The airline, which last week reported its highest annual profit in more than 20 years, also said it was looking forward to the launch of China’s crude futures contracts and would consider buying when the appropriate timing and opportunity arises.

Yuan-denominated oil futures <0#ISC:> were launched last month, becoming China’s first commodity derivative open to foreign investors. They are also the culmination of a decade-long push by the Shanghai Futures Exchange to give the world’s largest energy consumer more power in pricing crude sold to Asia.

Unlike many of their overseas peers, Chinese airlines do not hedge fuel buys after they suffered heavy losses in 2008. This helped when oil prices plunged in mid-2014 but has since left them vulnerable as prices rise.

Reporting by Tina Ge; Writing by Brenda Goh in SHANGHAIEditing by Christopher Cushing

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