China's top airlines brace for smaller profits on slower demand, weak yuan

China’s top three airlines are bracing for a further margin squeeze as softer travel demand pressures passenger yields and a weakening yuan currency inflates costs, analysts said, as many of them slashed their annual profit forecasts for the carriers. The outlook revision - for which analysts also cited an economic slowdown amid a US-China trade war and fears of rising oil prices - comes after China Southern, Air China and China Eastern turned in lower net profits for the January-June period last week, erasing Q1 gains. China Southern, the country’s largest carrier by passenger numbers, posted a 20.9% year-on-year drop in profit to 1.69b yuan ($238m), while China Eastern posted a 14.9% drop to 1.94b yuan. Air China saw a smaller 9.5% drop in net profit to 3.14b yuan due to positive returns from its investment in Hong Kong’s Cathay Pacific, which swung to its first profit for the January-June period since 2016. Passenger yields fell for all three airlines, with China Southern suffering the steepest decline of 1.65% from a year earlier. “With the expectation that trade talks will continue for the rest of 2019, we expect a decline in the yield to continue, resulting in a total 2.3% drop for the full year,” Ivan Su, an equity analyst at Morningstar, said of China Southern. Cargo demand is also expected to stay soft, as a protracted trade war between the world’s two biggest economies continues to disrupt global supply chains and rattle financial markets.<br/>