Fuel guzzles airline profits

HONG KONG - China Southern Airlines Co, the nation's biggest carrier by fleet size, had an unexpected loss in the second half of the 2004 year after its fuel bill surged by 66 per cent.

The net loss was 314.2 million yuan ($52 million), compared with a profit of 873.3 million yuan a year earlier. Sales rose 20 per cent to 12.9 billion yuan.

Chairman Liu Shaoyong plans to cut costs to restore profit, which fell into a loss even as passenger numbers surged 38 per cent to 28 million.

The International Air Transport Association says airlines worldwide may post combined losses of US$5.5 billion this year, based on an average crude oil price of $43 a barrel.

China Southern shares fell as much as 3.3 per cent and were trading 1.1 per cent lower at HK$2.275 in Hong Kong at 12.18pm yesterday.

The stock lost 26 per cent this year, and is the second worst-performing stock on the Hang Seng China Enterprises Index, which is down 0.1 per cent.

Fuel costs, which typically account for between 15 per cent and 40 per cent of total operating expenses, may rise by a fifth to a combined $76 billion, according to the International Air Transport Association, which represents 270 airlines.

China Southern said fuel costs made up more than 30 per cent of operating costs in 2004.

Crude oil in New York has risen 26 per cent this year. The price of jet kerosene traded in Singapore surged 50 per cent this year, and rose 0.32 per cent to $72.29 a barrel yesterday, according to the oil-pricing service Platts. It surged to a record $76.38 a barrel on April 4.

China Southern paid 3.3 billion yuan for fuel in the second half, two-thirds more than the period in 2003. For the full year, its fuel bill rose 57 per cent to 6.05 billion yuan. It said that, as in 2003, it would not pay a final dividend.

- BLOOMBERG