China: Weaker yuan, oil price volatility will hit airlines’ profits, say analysts

A weaker yuan and volatile global oil prices are likely to dent Chinese airlines’ earnings, though the trade war is having a negligible impact, according to analysts. The carriers may suffer losses from the depreciating yuan because of their exposure to foreign-currency loans. The yuan has slipped about 3% since mid-April. The biggest mainland Chinese airlines, including China Southern, Air China and China Eastern, have been among the worst performers on the stock market since April with their share prices down by about 30%. Investment bank Jefferies estimated that a 1% change in the yuan’s exchange rate leads to a 2.4% change in earnings for Air China, 2.9% for China Eastern and 4.6% for China Southern. Crude oil prices have been falling recently, with West Texas Intermediate at a six-month low, settling at $51.68 a barrel on Wednesday. “But volatility in the global crude oil prices can be expected,” said Huang Lei, an independent futures analyst. “A rebound in prices will affect the Chinese airlines’ earnings as they pay extra dollars to buy jet fuel. Moreover, Chinese airlines have no hedging against fuel prices.” The impact of tit-for-tat trade tariffs on Chinese airlines has been minimal, according to Jefferies. Data from the company showed that US-China routes accounted for just 6.7% of total passenger revenue for Air China. On international routes, the US is only the seventh most popular destination for Chinese airlines.<br/>