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China Airlines raises profit forecast

"We have to pray for oil prices to fall."

Chiang Yao-chung, chairman of China Airlines

China Airlines (華航) raised its pretax profit forecast for this year by almost a 10th as passenger and cargo traffic rebounds.

The carrier said pretax profit for this year should be between NT$3.5 billion (US$103.2 million) and NT$3.6 billion, compared with its previous estimate of NT$3.2 billion.

"We should be able to achieve the pretax profit forecast," airline president Philip Wei (魏幸雄) told reporters in Taipei.

China Airlines reported a pretax profit of NT$2.74 billion during the first eight months of the year, he said.

The forecast can be met as long as the cost of crude oil stays at less than US$50 a barrel, Wei said.

Fuel accounts for 26 percent of China Airlines' operating costs. For every US$1 a barrel increase in crude oil prices, China Airlines' operating cost increases by US$15 million a year, he added.

On the local bourse, China Airlines' shares fell 1.2 percent to a five-week low of NT$16.80. The shares are up 20 percent this year.

Wei gave the airline's new profit forecast after the market closed.

The price of jet fuel surged to a record high of US$59.22 on Friday, undermining earnings growth for airlines across the region.

The company, which uses 15 million barrels of fuel annually, has fixed about 80 percent of its fuel purchases through next June, chairman Chiang Yao-chung (江耀宗) said.

Chiang, appointed to the position two months ago, said the company's business is expected to "grow steadily" next year. He declined to give specifics.

But Chiang said how much the business grows will depend on oil prices.

"We have to pray for oil prices to fall," he said.

Crude oil for November delivery rose as high as US$49.36 a barrel in after-hours trading on the New York Mercantile Exchange, four cents short of the record on Aug. 20.

Chiang said his company is still trying to iron out some "commercial issues" in a joint venture with the cargo unit of the mainland's China Eastern Airlines Corp.

"I am cautiously optimistic about the deal," he said.

China Airlines has signed a deal with China Eastern to acquire a 25 percent stake in the cargo unit, China Cargo Airlines. The government approved the acquisition in 2002, and Beijing approved it last year.

China Airlines hopes to tap into the rapidly growing cargo business in China through the joint venture. But the two sides have yet to begin any commercial operations.

Separately, Wei said the carrier ruled out buying Boeing Co's new 7E7 planes because it wants to streamline the types of aircraft in its fleet.

China Airlines ordered two Boeing freighters in April, boosting its cargo fleet to 21 by 2007, including orders placed in 2002.
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