Taiwan's two major airlines expect their fortunes to recover on the strength of an anticipated rebound by the US technology sector in the second half of next year, analysts say.
"We should start seeing signs of improvement by the beginning of the second quarter and by the end of next year it should be back to a profitable footing for all the carriers," said Philip Wickham, an airline analyst at ING Barings in Hong Kong.
Wickham said that as both China Airlines Co (華航) and EVA Airways Corp (長榮) are highly leveraged in freight operations and maintain a lot more routes to the US than other carriers. They will be the first to show a turnaround.
"Both of those attributes hurt them this year but that should help them next year as the US recovers," said Wickham.
China Airlines and EVA have been hit hard in the wake of the Sept. 11 attacks in the US, which compounded the effects of an on-going global recession, and led to the slashing of flights to the US, employee layoffs and wages cuts.
EVA reported that by November its accumulated revenues had contracted by 4.38 percent year-on-year while an original annual pre-tax profit forecast of NT$2.05 billion was revised in September to a loss of NT$3.34 billion.
China Airlines has also seen its revenues to November contract by 2.48 percent year-on-year while reducing its annual pre-tax profit forecast to NT$1.37 billion down from NT$3.26 billion.
However, lower aviation fuel costs and steadily building cargo and passenger volumes are starting to pull the airlines out of their dive, the bottom of which was hit in early October, according to analysts.
The shares of both China Airlines and EVA have enjoyed a steady rise since Oct. 8, with their shares gaining 36 percent and 66 percent in value since that date, respectively.
As of December China Airlines has resumed its flights to the US, cargo volume was increasing and passenger loads of over 70 percent were recorded for the first 20 days of December, said Joseph Wu (
Timothy Ross, an industry analyst at UBS Warburg in Hong Kong, was also positive on China Airlines' US connections citing the company's code sharing agreement with Delta Air Lines.
"The deal will give CAL, which already flies directly to Los Angeles, San Francisco and New York, access to major US cities served by Delta's domestic network," Ross said.
EVA has also reportedly seen increasing cargo volumes, which Ross says will particularly benefit the company due to the large portion of its revenue, around 50 percent, which is derived from freight.
Despite all the good vibes there's still some way to go before the companies' comebacks are complete.
"It's still going to be an ugly couple of quarters," said Chris Smith, an analyst at Primasia Securities Co. "The weak season for cargo is next quarter and it should start to pick up around the second or third quarter," he said.
The recovery in cargo traffic for carriers will depend on whether the exports of electronic goods -- especially to the US -- picks up, Smith said.
Analysts are generally predicting that the tech sector in the US will have picked up by the second half of next year.
While the predictions offer hope for future sentiment, airlines have yet to see any solid improvement in their balance sheets.
"Even though there've been positive signs coming out of the US ? it hasn't flowed through to cargo revenues yet," he said.
RSS