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The Canadian Press - ONLINE EDITION

State-owned Air China first-half profit sinks by half as weaker yuan hikes costs

HONG KONG - Air China says its six-month profit fell by more than half as the weakening yuan raised financing costs and other expenses.

The state-owned carrier reported late Tuesday that profit fell to 474.4 million yuan ($77 million) for the January-June period from 1.1 billion yuan last year.

Revenue rose 7 per cent to 49 billion yuan, highlighting the underlying strength of China's travel market.

The carrier booked a net foreign currency loss of 721 million yuan ($117 million) for the half year compared with a net gain of 1.2 billion yuan the year before.

The earnings of China's airlines are sensitive to fluctuations in the currency, which depreciated more than 2 per cent in the first half of the year. That made it costlier for the airlines to buy jet fuel and repay debt used to buy airplanes from Boeing and Airbus, which are paid for in dollars.

China's two other big state-owned carriers, China Southern Airlines and China Eastern Airlines, have warned investors to expect smaller profits because of yuan weakness when they release earnings on Friday.

Air China Ltd. said "enthusiasm for outbound travel remained high and the market for international passengers continued to be strong," although some regions and routes faced higher operating pressures. The company said that it was cutting capacity to Southeast Asian destinations in the wake of political instability in the region.

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