China's top airlines report quarterly profit after years of losses © Reuters. FILE PHOTO: An Air China plane is seen at the international airport in Beijing, China October 19, 2023. REUTERS/Edgar Su/File photo

By Sophie Yu and Brenda Goh

BEIJING (Reuters) -China Southern Airlines and China Eastern Airlines (OTC:) each reported first quarterly profits in more than three years on Friday, as a pickup in international flights complemented a recovery in the domestic market.

The results, coupled with similarly encouraging figures from Air China (OTC:), are helping to fan industry hopes for China’s big three state carriers to finally step out of the difficulties brought by the COVID-19 pandemic.

China Southern, based in the southern city of Guangzhou, reported third-quarter profit of 4.2 billion yuan ($573.89 million), compared with a loss of 1.0 billion yuan in the prior quarter, and a loss of 6.1 billion in the year-earlier quarter.

Shanghai-headquartered China Eastern booked a quarterly net profit of 3.6 billion yuan, compared with a loss of 2.4 billion yuan in the previous three months, and a loss of 9.4 billion yuan in the year-earlier period.

The Hong Kong-listed shares of flagship Air China rose almost 6% in their biggest jump in four months, but gave back some gains to close up 4.7% after the airline reported its first quarterly profit in nearly four years.

Air China said third-quarter net profit was 4.24 billion yuan on Thursday, versus a loss of 600 million yuan in the previous quarter and 8.67 billion yuan in the year-ago period.

The aviation regulator said on Friday that air passenger numbers in the third quarter reached 180 million, or 2.6% higher than the level pre-pandemic level in 2019, and a record for any quarter.

However, the number of international flights, especially to developed countries, is still markedly smaller than in 2019, said Li Hanming, an independent expert on Chinese aviation.

“Those routes are the most lucrative,” Li said.

Air China and China Southern did not give a breakdown of revenue contributions from domestic and international travel.

Air China’s profit followed 15 quarters of losses, brokerage Jeffries said in a client report, and turned earnings positive for the nine months of this year with a profit of nearly 800 million yuan.

Increased passenger capacity, a stable currency and investment income contributed to the profit, Jefferies added.

While domestic travel rebounded quickly to pre-2019 levels after the government abandoned its zero-COVID policy at the end of last year, international flights have been increasing only gradually.

The number of international flights with China is just 50%-60% of pre-pandemic levels, data from tracking app Flight Master showed.

Resumption of international flights also varies with destination.

By early October, the number of flights to Britain or Italy was about 110% of 2019, whereas the number to the United States, at a time of troubled ties, was 5% to 10%, industry experts said.

Airlines will further resume, and even add, international routes in the fourth quarter as they shift to new winter-spring schedules on Oct. 29.

China Eastern, for example, will restart Shanghai-Brisbane flights on Oct. 31, while Air China will resume flights between Beijing and San Francisco on Nov. 1.

China Eastern said it expected international and regional flights to recover in the new aviation season to 80% of the levels of 2019 by year-end.

($1=7.3185 renminbi)

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