China Southern Swings to Loss on Forex Fluctuation Impact

(Bloomberg) China Southern Airlines Co., the country’s largest airline by passengers carried, posted a first-half net loss after suffering the sharpest foreign-exchange loss among the three biggest Chinese carriers.

The Guangzhou-based carrier swung to a net loss of 1.06 billion yuan ($173 million) from 344 million yuan in net income a year ago, according to a Hong Kong exchange filing yesterday that’s based on international accounting standards.

China Southern cited fluctuations in the Chinese currency for its weakening profit in a statement issued last month. Air China Ltd.  and China Eastern Airlines Corp. had also issued similar warnings in July. The yuan, which weakened 2.4 percent against the dollar in the first half, will probably fall about 1 percent in the second half, according to the median of 58 economist and analyst forecasts compiled by Bloomberg.

“If the yuan’s picking up, it’s positive for airlines,” said Claire Teng, a transportation analyst at Standard Chartered Plc. ahead of the earnings release. “Chinese airlines will swing into a forex gain.”

Yield per revenue passenger kilometer fell 1.7 percent to 0.58 yuan in the first half, the airline said.

China Southern rose 2 percent in Hong Kong trading yesterday to close at HK$2.61 before the earnings announcement. The stock has dropped 14 percent this year, compared to a 6.2 percent gain in the city’s benchmark Hang Seng Index.

Passenger Traffic

The airline recorded a 1.11 billion yuan net foreign exchange loss, compared with a 1.52 billion yuan net gain a year ago, it said. That compares to a 660 million yuan foreign exchange loss for China Eastern and 721 million yuan for Air China.

China Southern’s net loss came despite year-on-year increases of 8.7 percent in operating revenue and 10.2 percent in passenger traffic volume, according to the statement.

The airline’s net loss was near the higher end of a 900 million yuan to 1.1 billion yuan range it had indicated last month. Net income reported by Air China and China Eastern was at the stronger end of guidance they had provided earlier.

Shanghai-based China Eastern reported a 98 percent tumble in first-half net income to 12 million yuan from 622 million yuan a year earlier, the company said in a Shanghai exchange statement yesterday.

Beijing-headquartered Air China on Aug. 26 said its first-half net income dropped 55 percent to 510 million yuan, compared with a forecast of a 55 percent to 65 percent decline.

Source: Bloomberg News by clement tan

Air China Profit Dips as Weak Yuan Compounds Debt Burden

(Bloomberg) Air China Ltd., the country’s largest airline by market value, posted a 55.4 percent drop in profit in the first six months of the year as a weaker yuan inflated overseas debt payments.

Net income declined to 510 million yuan ($82.9 million) in the six months ended in June from a year ago based on international accounting standards, the Chinese flag carrier said in a statement to the Shanghai stock exchange. The profit was in line with the 55 percent to 65 percent decline forecast by Air China on July 14.

The yuan fell more than 2 percent against the dollar in the first half of this year, driving up costs for Air China, which has 70 percent of its debt denominated in the greenback at the end of 2013. Foreign exchange losses are expected to also weigh on the earnings of China Eastern Airlines Corp. and China Southern Airlines Co., which are slated to report first-half results later this week.

“Chinese airlines’ earnings are very sensitive” to the exchange rate, Patrick Xu, a Hong Kong-based airline analyst with Barclays, said in a note dated Aug. 20. “The earnings impact mainly comes from marking-to-market U.S. dollar-denominated debt and hence is mostly non-cash.”

Air China shares fell 1.8 percent to close at HK$4.88 in Hong Kong before the earnings announcement. The stock has dropped 16 percent this year, compared to a 7.6 percent gain in the benchmark Hang Seng Index.

Exchange Loss

The Beijing-based carrier said it booked a net foreign exchange loss of 721 million yuan in the first six months this year, compared with a 1.1 billion yuan net gain in the year earlier period.

Air China’s net gearing ratio stood at 71.8 percent at the end of June, almost unchanged from end-2013, the statement showed. Its passenger yield, a measure of sales per seat per passenger mile, declined 1.7 percent to 0.59 yuan, the country’s third-largest airline by volume said in the statement.

The carrier served 40.14 million passengers in the first six months, 7.2 percent more than a year earlier, according to the statement. Overall load factor was 80.6 percent, compared with 81.1 percent a year ago, it said.

Source: Bloomberg News by Clement Tan

BOC Aviation orders Boeing planes worth $8.8 billion

(Reuters) - BOC Aviation, the leasing arm of Bank of China, has placed the biggest order in its 20-year history for 80 Boeing medium-haul passenger planes, weeks after lessor SMBC Aviation ordered 115 Airbus jets.

The shopping spree by leasing companies comes as they ride a boom in aviation financing and see strong demand from airlines. Seeking to keep lean balance sheets, airlines are increasingly turning to lessors to upgrade fleets to fuel-efficient aircraft.

Singapore-based BOC Aviation, one of the world's leading lessors, said the order was for 50 Boeing 737 Max 8 planes and 30 Next Generation 737-800 aircraft, which will be delivered from 2016 to 2021.

The order, which also includes two 777-300ER long-haul wide-body planes, has a value of $8.8 billion at list prices, Boeing said. Last month, SMBC placed an order worth about $11.8 billion for Airbus planes. Buyers typically receive an undisclosed discount on the listed prices of jets.

The order is part of BOC Aviation's strategy to build its fleet for the next seven years. The company had a fleet of 251 delivered aircraft as of June 30. 

"Following the successful placement of the 50 Next Generation 737 aircraft that we ordered in 2006, this is a continuation of our commitment to be responsive to airline customers which are expanding or replacing older fleets," said Robert Martin, managing director and CEO of BOC Aviation.

Asia-Pacific is the top region for aviation growth. The region's customers are expected to buy about $2 trillion worth of planes over the next 20 years, or 39 percent of global sales of $5.2 trillion, according to Boeing's latest forecast.

Lessors such as BOC Aviation place their aircraft with airlines globally, and are increasingly important customers for the plane makers as their share of global fleets grows.

The order for the upgraded, re-engined variant of the Boeing narrow-body jet follows BOC's deal for 43 of Airbus Group NV's A320 family of aircraft, including seven of the re-engined A320neo planes, at the Farnborough airshow in July.

Source: Reuters by Anshuman Daga 

Chinese Are Traveling More, Shopping Less

(WSJ) Sellers of expensive handbags, jewelry and wine have feasted on Chinese buyers. The banquet is over now.

Zhiyuan Zhuang, an assistant store manager at a Bottega Veneta shop in Milan, remembers the boom times through 2012, when the first wave of Chinese shoppers were a ray of sunlight amid the gloomy European economy. "We used to have older clients accompanied by their translators who would buy without thinking as if they were not spending their money," Mr. Zhuang said.

"They have disappeared now," he added. "Now we are seeing more young couples who pick and choose."

Dora Tao is typical of a more sophisticated Chinese traveler. The 38-year-old accountant from Shanghai used to buy things for her friends, family and colleagues when she traveled to Germany for work. "I bought at almost every luxury store on the main shopping street in Frankfurt, mainly for other people," said Ms. Tao. Her purchases included Louis Vuitton scarves for business associates, bought on behalf of a friend, and German cooking pans and Cuckoo clocks, which her relatives wanted.

But this summer when she took her family and parents to Austria, the Czech Republic and Germany, they went to a concert at Vienna's Golden Hall and tried rafting for the first time. They shopped only to pick up some medicines they can't find in China.

Ms. Tao's changing tastes are typical of Chinese shoppers. More Chinese than ever are traveling abroad, but they are shopping less.

Almost 100 million Chinese took trips abroad last year, accounting for 9% of international trips outside China, according to the World Tourism Organization. They outspent travelers from other countries, accounting for 27% of the value of all tax-refund claims made in 2013 with Global Blue, which processes refunds at airports for shoppers visiting from abroad.

But the shopping craze is losing its momentum. Tax-refund claims by Chinese tourists in Europe grew just 18% in 2013, compared with 57% in 2012, said Global Blue.

"The Hong Kong market is weak and so is Western Europe," said Erwan Ramboug, author of "The Bling Dynasty: Why the Reign of Chinese Luxury Shoppers Has Only Just Begun."

"This might seem unimportant if Chinese travelers are simply shopping in different cities," added Mr. Ramboug, a co-head of global consumer and retail research at HSBC. "However, not all sales that have been lost from one market are being recouped in another." He still believes in the long-term buying power of Chinese consumers but advises investors to stay away from luxury stocks for the moment.

Luxury-goods sellers and industry analysts give different reasons for the weakness. They cite Beijing's anticorruption campaign, the strong euro and tension between Hong Kong and mainland China, which is keeping tourists away and hurting luxury-goods sales in the Chinese territory.

Prada Group said revenue in Europe fell by 1% in the first half of the year, partly due to the fall in tourism volume from China. LVMH Moët Hennessy Louis Vuitton SA blamed an "unfavorable currency environment" for its weak results in Europe during the same period.

In Hong Kong, mainland tourist arrivals fell 2% year on year during a May holiday that is traditionally a huge shopping period. Fewer mainland tourists contributed to a 6.9% year-on-year decline in June retail sales in Hong Kong, while sales of jewelry, watches and other luxury goods plunged 28%.

Some retailers blame the decline on a souring relationship between Hong Kong and mainland China, which has led to protests against mainland tourists in front of some shops. "You shouldn't underestimate the impact of those people in groups of two or three, in front of your shops chanting, 'We don't want your money, just go back home,' " said Francis Belin, head of Swarovski's Asia consumer-goods business. "This has gone viral."

But there is a simpler—and, for the luxury-goods industry, more worrisome—explanation. Chinese are refusing to pay inflated prices for luxury products. The trend is just starting, but it could weigh on profits even if sales rebound.

Luxury goods have long been more expensive in China than abroad, creating an incentive to shop overseas. That price gap is closing. In February 2013, premium handbags were on average 50% more expensive in China than in Europe, according to Luca Solca, the head of luxury goods at Exane BNP Paribas. Now, they are 40% more expensive. The portion of the markup that can't be explained by China's import duties is largely gone.

The gap between Hong Kong and mainland China is even smaller, as retailers mark up prices in Hong Kong in response to higher rents. In 2013, the price of a classic Chanel quilted bag rose by 31% in Hong Kong but just 10% in Shanghai, according to brokerage firm CLSA. As a result, a bag that was 20% more expensive in Shanghai than in Hong Kong is now about the same price.

As China's big spenders disappear, those prices have nowhere to go but down.

Source: Wall Street Journal 

Beijing Capital International Airport Profit Flat in First Half

(WSJ) Beijing Capital International Airport Co.'s first-half net profit was flat, capped by slower air-traffic growth and limited handling capacity at the overcrowded gateway.

The Hong Hong-listed company, which operates the airport in the nation's capital, said net profit for the six months ended June 30 rose 0.6% to 677.7 million yuan ($110.2 million) from 673.3 million yuan a year earlier. Its revenue rose 4.8% to 3.7 billion yuan from 3.53 billion yuan.

Air-traffic volume growth at Beijing Capital Airport has been slowing in recent years as the nation's busiest airport by passenger throughput is running well beyond its designed capacity of 76 million passengers a year.

The airport handled 1.9% more passengers, for a total of 41.6 million, in the first half of the year, following 2.2% growth for all of 2013 to 83.71 million passengers. That made it the world's second busiest airport after Hartsfield-Jackson Atlanta International Airport in the U.S.

The weak first-half earnings also come after the Chinese government in May unveiled a plan to build a $14 billion airport on the outskirts of the nation's capital to relieve congestion at Beijing Capital Airport. 

Set to open in 2018, the airport will have four runways in its first phase and will be able to handle nearly as many passengers as Beijing Capital Airport, with provisions for three additional runways as needed.

The company said in a statement that slower economic growth, political uncertainty in some regions and a decrease in air travel demand to Southeast Asian countries following the disappearance of Malaysia Airlines Flight 370 also contributed to the traffic-growth slowdown.

It expects air traffic growth on international routes to outperform domestic traffic growth in the second half as the global economy continues to recover.

The company recommended a first-half dividend of 0.0469 yuan a share, compared with a first-half dividend of 0.0466 yuan a year earlier.

Source: Wall Street Journal by Joanne Chiu

Global Cruise Lines Set Sail for China

(AP) — Royal Caribbean's newest ship has attractions not usually seen on cruise liners, including bumper cars, a skydiving simulator and a glass observation capsule on a mechanical arm that lifts its passengers high into the air.

What's also a surprise is the vessel's intended home port: Shanghai.

After floating out of a German shipyard last week, the $935 million Quantum of the Seas will spend the winter running between New York and the Caribbean before moving to its new base next summer in mainland China's financial center.

It's a gutsy move for the world's second biggest cruise company. Cruise operators have traditionally sent older vessels to developing countries while saving their most advanced ships for U.S. and European customers. But surging growth in China means it's a market operators can no longer ignore.

Carnival Corp., the No. 1 cruise company, will become the first global cruise operator to have four ships based in China when it deploys its Costa Serena to Shanghai in April.

The race for China underscores the growing strength of the leisure and travel industries in the world's No. 2 economy as authorities try to spur domestic spending rather than trade and investment as an engine of growth.

Executives are confident about China's prospects even as its economy struggles with a prolonged slowdown from double digit rates of expansion, saying that growth is still strong when compared with developed markets.

Miami-based Carnival expects to carry 500,000 Chinese cruise passengers in 2015, up from 350,000 this year.

"We know that's just a drop in the bucket to what lies ahead in terms of the market in China, which we believe is going to someday represent more than half of all the cruise guests," Carnival CEO Arnold 

Donald said in a phone interview.

The Asian Cruise Association estimated last year that the overall Asian market, which totaled 1.3 million passengers in 2012, could nearly triple to 3.8 million in 2020, including 1.6 million from China.

Carnival is even more optimistic, predicting the number will grow to 7 million by 2020 or about a fifth of the global market.

"For the next five to 10 years, greater China including Hong Kong will play a critical role to the global cruise industry's development," said Zinan Liu, Royal Caribbean Cruises Ltd.'s managing director for China.

While the U.S. and European are showing signs of revival, "there's no region like China and Asia that will grow as rapidly," he said.

Liu said Royal Caribbean expects to carry 400,000 Chinese cruise passengers in 2015, double the number from last year, from four main ports — Shanghai, Hong Kong, Xiamen and Tianjin.

The company's 18-deck Quantum of the Seas, which carries 4,180-passengers, arrives in Shanghai in May next year, joining two other Royal Caribbean ships based in China. It's also expanding operations in Hong Kong to better market to customers in neighboring Guangdong, the richest province in mainland China, Liu said.

For Carnival, the addition of the Costa Serena will raise its China capacity by 3,780 passengers. The company has two other Costa brand vessels stationed in Shanghai as well as one with its Princess brand.

While companies are salivating over the growth potential of China's newly wealthy middle class, hurdles remain.

One factor complicating efforts to pitch cruises to mainland Chinese is that "the vast majority of the population have no concept of a cruise," said Donald, Carnival's CEO.

Unlike American or European cruise passengers, who tend to be older and have the time to take two week journeys, Chinese cruise travelers are younger and have less vacation time. That limits the possible itineraries and presents a challenge in cultivating repeat travelers.

Shanghai software engineer Cao Ying took a five-day cruise to Japan and South Korea with her husband on Carnival Corp.'s Sapphire Princess, operated by its Princess Cruises brand, after he took one with other staff at his Internet company to entertain clients.

The 30-year-old loved the dining, the shows, the spa and the helpful staff. But she complained that there wasn't enough time during port calls.

"I think travelling by cruise is a good experience, but the downside is that you couldn't really see a lot. I couldn't go to visit the places I would like to go in a foreign country," said Cao. "So unless it's a free trip, I wouldn't take a second cruise, even to go to another country."

Another big complaint is insufficient cruise ports and related facilities. China's focus in the past few decades on export manufacturing means ports are geared to shipping containers rather than leisure travelers.

Uncoordinated infrastructure development was highlighted when Shanghai opened a new $260 million cruise terminal on the city's historic riverside Bund in 2008, only to discover that many big ships couldn't access it because of a low bridge downstream. Another $140 million terminal with two berths opened at the river's mouth in 2011 to accommodate those vessels.

Hong Kong christened a new $1.2 billion cruise terminal last year, but the Norman Foster-designed facility has so far been infrequently used. Visits are expected to pick up in coming years.

Visitors have criticized the terminal, built at the end of the old Kai Tak airport's runway jutting into the scenic harbor, for being hard to access by bus or taxi. A smaller terminal near the city center is more popular and a home base for ships operated by Genting Group's Star Cruises.

China's "lack of infrastructure is the biggest impediment to growth," the annual World Travel Market industry conference, said in a report last year that recommended government intervention to realize improvements.

Source: Associated Press by Kelvin Chan

Qingcheng Mountain in Chengdu, China

Qingcheng Mountain is a famous Taoist mountain, and is one of the places where Taoism was originated. 

Qingcheng Mountain has a beautiful peak near the city, and another peak sits behind it. It can be experienced differently depending which path you choose. Qingcheng Mountain has been a major travel highlight in Chengdu area because of its numerous ancient Taoist and Buddhist temples and historic sites. It was once a religious pilgrimage destination.

The mountain was enrolled into the UNESCO World Heritage in 2000.

Source: China Daily