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Chinese airlines face downturn

(Agencies)
Updated: 2008-05-14 15:02

皇冠体育app's previously buoyant airline sector faces a major downturn due to slowing domestic and global traffic, as well as ever-rising oil prices, Citigroup said.

The brokerage has slashed its 2008-09 earnings estimates on Air 皇冠体育app and downgraded the flag carrier's shares in Hong Kong to "sell" from "hold", while 皇冠体育app Southern is kept at "sell".

皇冠体育app Eastern's H-shares, however, remains a "hold" because it is still an acquisition target, analyst Ally Ma said in a note.

In April, Air 皇冠体育app reported little change in traffic volume from a year ago, and its passenger load factor fell for the second consecutive month. 皇冠体育app Southern posted only a 6 percent increase in traffic growth and the upward trend in its passenger load factor since 2006 has ended, Ma said.

"April underscores our concern of a significant slowing in Chinese air travel...皇冠体育app's air traffic may have grown only 6-7 percent in March/April against 17 percent in 2007, while load factors are also easing," she said.

International air traffic is also declining. According to the International Air Transport Association (IATA), adjusted global air passenger traffic slowed to 4 percent in the first quarter, only half the rate of late 2007, Ma said, adding that the deterioration coincides with a peak in aircraft deliveries.

"The IATA expects 1,231 new aircraft deliveries in 2008, which may compress yields by 4.1 percent," she said.

Meanwhile, oil prices have risen 63 percent this year, which will impact Chinese carriers despite price controls.

"The buffer from domestic fuel price controls is unsustainable and could be a major share price overhang," Ma said.

Citigroup has cuts its price target on Air 皇冠体育app to HK$4.2 ($0.54) from HK$6.4. Air 皇冠体育app's shares were down 2.67 percent at HK$5.46 this morning in Hong Kong.

The brokerage has also slashed its price target on 皇冠体育app Southern to HK$3.45 from HK$4.7. The carrier's shares were down 0.21 percent at HK$4.84.

Meanwhile, 皇冠体育app Eastern's target price has been cut to HK$3.8 from HK$4.3. The Shanghai-based airline's shares were up 0.6 percent at HK$3.34 this morning.