Wed, Feb 23, 2011 - Page 12 News List

Taiwan’s airline shares take a tumble

By Amy Su  /  Staff Reporter

Share prices for Taiwanese airlines tumbled yesterday on the local bourse as rising oil prices and slower cargo demand this year exacerbated investors’ concerns.

Shares for EVA Airways Corp (EVA, 長榮航空) dropped 6.81 percent to close at NT$25.3, while China Airlines Ltd (CAL, 中華航空) declined 4.69 percent to NT$18.3, on the benchmark TAIEX, data showed.

In London trading earlier yesterday, prices of Brent crude oil for April delivery surged past US$108 a barrel on ongoing political turmoil in Libya — a key global oil--producing country, according to the data from ICE Futures Exchange.

“The increase in oil prices is driving up pressure on airlines’ profitability,” EVA spokesman Nieh Kuo-wei (聶國維) said by telephone yesterday.

However, Nieh said the rising oil prices would not affect the company’s earnings that much because EVA has adopted fuel hedging to reduce possible losses.

Long-term average oil price matters more for airlines than short-term fluctuations, because the aviation sector commonly uses the previous month’s average oil price to determine fueling prices, Nieh said.

Nonetheless, industry analysts maintained their bearish views on the sector, saying that cargo demand would remain weaker this year than last year.

Macquarie Group Ltd on Thursday lowered its target prices on EVA and CAL to NT$27.5 and NT$21 respectively, saying that it expects the two carriers’ earnings to decline more than 30 percent once oil prices rise 10 percent.

Citigroup Global Markets also cut its target price on EVA on Thursday to NT$23.8 from NT$27 after the carrier’s cargo revenue declined 7 percent month-on-month to NT$3 billion last month with fewer semiconductor and IT hardware shipments.

Nieh said the company was still optimistic about its first-quarter performance in view of rebounding passenger traffic during the Lunar New Year holidays.

EVA saw its revenue climb 42.5 percent to NT$104.41 billion (US$3.54 billion) last year from 2009. Revenue at CAL, meanwhile, increased 40.8 percent to NT$138.14 billion last year, according to the companies’ financial reports released earlier.

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