Air China, the country’s largest airline by market value, posted a 58% drop in profit in the first six months of the year despite steady demand for air service in the region. Adverse dynamic of the yuan exchange rate versus the U.S. dollar accounts for such a slump in revenues. The corporation’s net income amounted to 474.4 million yuan in the six months ended in June as compared to 1.12 billion yuan the same period in 2013. The Beijing-based carrier said it booked a net foreign exchange loss of 721 million yuan in H1 this year. The renminbi fell more than 2% against the dollar in the first six months of 2014, driving up costs for Air China, which has 70% of its debt denominated in the greenback at the end of 2013. Thus, the weaker yuan inflated overseas debt payments.
Meanwhile, economists expect demand for air service in China to grow further. So, China’s government is about to found a special investment fund with the aim of developing the civil aviation infrastructure. However, the main problem Air China Ltd, the leader among the local air carriers, still faces is related to volatility on international currency markets. Citing Patrick Xu, an airline analyst with Barclays, “Chinese airlines’ earnings are very sensitive to the exchange rate.” Most experts are certain the U.S. dollar will keep on rising amid the robust U.S. economic recovery.
