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August 11, 2009

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China Eastern flies to H1 profit on gains from fuel hedging

CHINA Eastern Airlines returned to profit in the first half of this year thanks to fuel-hedging gains while its smaller rival, Shanghai Airlines, flew into a loss in the period.

Net income of Shanghai-based China Eastern soared to 1.17 billion yuan (US$171 million) in the six months, or 0.24 yuan apiece, from 1.3 million yuan a year earlier, the country's third-largest carrier said in a statement to the Shanghai Stock Exchange yesterday.

The carrier attributed the profit growth to the 2.8 billion yuan worth of gains it made in fuel hedging contracts from January to June, compared with 451 million yuan a year ago.

But its revenue declined 16 percent to 17.5 billion yuan and its operating profit declined 21 million yuan, compared with a 451 million yuan loss a year ago, the statement said.

"The carrier should perform better in operating profit as the domestic aviation market posted a strong recovery in the first half, which indicated that its profitability was still weak because of fierce competition," said Li Lei, an analyst at China Securities Co.

Li forecast the domestic aviation market to grow faster in the second half of this year and China Eastern is likely to return to profit for the year.

Meanwhile, Shanghai Airlines, which is in talks with China Eastern about a merger, lost 679 million yuan in the first half due to a plunge in cargo volume, compared with a loss of 35.72 million yuan in the first half of last year, it said in a statement to the Shanghai bourse yesterday.

The carrier blamed the loss on the global financial crisis and the H1N1 virus outbreak which cut its passenger income by 9.6 percent to 3.76 billion yuan and cargo income by 55 percent to 498 million yuan.

"China Eastern's takeover of Shanghai Air won't enhance profitability in the short term, but for the middle and long terms, it will be a good deal," Li said.

Shanghai Airlines' board of directors yesterday approved the merger between the two carriers but the plan still requires approval from shareholders and regulators.

Ma Xulun, general manager of China Eastern, said last week the merger is likely to be completed by the end of this year.


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