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September 15, 2009

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Domestic airlines fly back into the black

CHINESE domestic airlines, which suffered huge losses last year, have gone back into the black this year, thanks to a recovery in air travel, according to the head of the country's aviation regulator.

"Domestic carriers earned a combined 8 billion yuan (US$1.17 billion) so far this year, compared with a 28.2 billion yuan loss in the whole of 2008," Li Jiaxiang, director of the Civil Aviation Administration of China, told an industry conference on Sunday.

Domestic carriers, led by China Eastern Airlines, nosedived into the red last year on higher fuel prices, waning demand and fuel-hedging bets gone wrong.

The Chinese government's hefty stimulus packages, unveiled late last year, has underpinned the turnaround in the airline industry. In the first seven months of 2009, passenger numbers surged 17.3 percent from a year earlier to 128 million.

Some carriers have made profits from fuel hedging after the global oil price more than doubled from February to about US$70 a barrel.

"The air market will enter its off-season in the fourth quarter after booming during the National Day holiday in October, but we can expect a recovery in the international cargo market in that period," said Wang Zhilin, an analyst at KGI.

Li also warned privately owned carriers of the risks posed by overly rapid expansion.

"Regional routes developed well in the first half, and the aviation market is full of opportunities," he said.

Cash-strapped East Star Airlines Co, a private regional carrier, became the first Chinese airline to go bankrupt, crashing under more than 1 billion yuan of debt.


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