China airlines posts profit but turbulence forecast

China's airlines returned to profit in 2009 as traffic rose, fuel prices fell and government policies provided a favourable tailwind, but analysts warn they could face fresh turbulence this year.

This news comes as one of the country's biggest carriers, China Eastern Airlines, plans to launch its Middle East operations with three weekly flights connecting Kunming and Dubai from February 22.

China Eastern Airlines, along with the country's big carriers – China Southern Airlines and Air China – all suffered heavy losses in 2008 as the worldwide economic crisis struck, but said this month they will be in the black for 2009.

The industry posted a profit of Y7.4 billion (Dh4bn) in 2009 and passenger volume grew 19.7 per cent on-year to 230 million.

But analysts said while the outlook remained solid for 2010, the airlines would lose steam as the explosive growth in passenger volume slowed, with some travellers opting to stay home and others looking at cheaper forms of transport.

"We are generally optimistic about the aviation industry, given the positive fundamentals such as the 2010 World Expo and continued economic recovery," said Chen Huanyu, an analyst at brokerage Guotai Junan in Hong Kong.

But he warned the 2009 turnaround was largely underpinned by non-operating profits such as gains in fuel hedging deals and nearly $2bn of government aid granted to the top three carriers since late 2008.

"We are going to see some uphills and downhills in their earnings in 2010 and maybe the following year," Chen said, noting carriers would be hit with the resumption of payments to an infrastructure fund, halted during the crisis.

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