Taiwan's China Airlines Targets Profitable 2014 Amid Falling Aviation Fuel Prices

With the recent OPEC decision not to cut production that further reduced crude oil prices to a new 4-year low as well as other factors,  China Airlines, Taiwan's largest  by fleet size, has gradually cut its net loss to target a profitable 2014.

For the first nine months of the year, the company posted cumulative revenue of NT$112.439 billion (US$3.74 billion), including NT$73.157 billion (US$2.43 billion) from passenger transportation and NT$31.505 billion (US$1.05 billion) from cargo service, up 4.8% and 12.61% year-on-year (YoY), respectively, with operating profits of NT$623 million (US$20.76 million). But it still suffered net loss of NT$2.432 billion (US$81.06 million), or NT$0.5 per share, mainly due to relatively high international  aviation fuel prices.

However, the recent drop of fuel prices enables the Taiwanese airline sigh of relief. After declining to average of US$116 per barrel in Q3, international fuel price has continued diving, to US$112.48 in October and US$101.56 in early November, and will likely slide to sub- US$100 in December as generally agreed, which have already buoyed airline share prices globally.

Due to cheaper fuel prices along with peak air travel season, China Airlines scored profits of NT$1.211 billion (US$40.36 million) in Q3 and therefore reduced cumulative losses during January-September to NT$2.583 billion (US$86.1 million).

Fuel accounts for nearly 50% of China Airlines' operating costs, but will very likely drop to sub- 45% in Q4, when international crude oil prices are predicted to dip further, with a few experts on global news TV mentioning $60 a barrel being realistically possible.

Based on the airline's quarterly consumption of 1.4 million barrels and assuming average price of US$104 per barrel in Q4, institutional investors generally believe the carrier to save up to NT$1.54 billion (US$51.33 million), to post stronger performance than in Q3.

Another factor working for China Airline in the short term is the addition of three new Boeing 777-300ER jets to its long-range fleet,  noted for consuming 20% less fuel than Boeing 747s, to fly the Taiwan-Los Angeles route beginning in December. Each new jet is estimated to save around NT$300 million (US$10 million) in fuel cost for carrier a year.

More good news that the market demand for air freight is increasingly strong, coupled with robust air travel during Q4. Driven by air shipping peak in the U.S., the airline saw revenue from freight service surge to NT$3.812 billion (US$127.06 million) in October, up 10.28% month-on-month, and is predicted to score higher revenue in November, when seasonal boom hit the sector.

Noteworthy is that Tigerair Taiwan, a low-cost carrier established by China Airlines (NT$1.6 billion or US$53.33 million investment for 90% stake) and Singapore-based Tiger Airways, has seen passenger load factor remain around 90% since taking off in September, and is expected to finish Q4 with net loss of only several tens of millions of NT-dollars, which China Airline stresses, will only modestly impact 2014 performance. (SC)

China Airlines' 2014 Performance by Quarter
Period	Q1	Q2	Q3
Revenue	NT$34.977 Bn.	NT$37.286 Bn.	NT$39.595 Bn.
Net Profits	- NT$2.726 Bn.	- NT$1.033 Bn.	NT$1.177 Bn.

Source: Market Observation Post System