China Airlines Co (CAL, 華航) will likely not have to revise downward its annual profit forecast of NT$1.4 billion this year due to lower financial costs and higher cargo yeilds, dispelling concerns that operations may be seriously impacted by the May 25 accident that killed 225 people.
Roger Han (韓梁中), spokesman for CAL, told the Taipei Times yesterday that current profits are holding close to their original estimates meaning that it would likely be unneccessary to revise downward the annual forecast.
"So far actual profits are still very close to our forecast and we would only have to revise our it if the difference is over 20 percent," said Han.
Helping to maintain profits have been stronger cargo yields and lower financial expenses on the back of weaker interest rates.
Cargo traffic and yields strengthened considerably in the first half by 13 percent and 7 percent respectively year-on-year, according to Credit Suisse First Boston.
ING Securities Ltd predicted that the strong cargo yeilds will continue into the second half.
Lower global interest rates will also play a role in improved financial performance by cutting expenses.
"Last year we predicted that average international rate for this year would be around 3.5 percent to 4 percent, but after June the global economy is still weak so the average international rate could be even lower - perhaps by 1 percent - for the entire year," he said.
For CAL, which manages NT$80 billion in debt, a 1 percent interest rate drop can save the company around NT$800 million, said Han.
Phillip Wei (魏幸雄) chairman of the airline, which is generally considered one of the world's most dangerous, was quoted by the Commercial Times as saying passnger load factors had returned to over 75 percent.
"China Airlines' operations appear to be getting back on the rails," Wei was quoted as saying.
Part of the reason for the return of passengers was attributed to CAL's decision to keep prices low during the peak summer months of July and August when they are traditionally raised.
Indeed according to Han passenger load factors system-wide for the last week of August hit 82 percent having climbed steadily off lows after the accident in early June of around 50 percent to 55 percent.
CAL cut its prices through most of the peak summer vacation season by up to 20 percent but since the middle of last month narrowed the cuts to around 5 percent to 10 percent below average, said Han.
"But even once we raised prices our load factors remain very high - maintaining 74 percent in the first week of September, which is usually a slow month - so we are confident that we won back the confidence of the passengers," said Han.
The carrier may have won back customers but it has come at a price.
According to a recent research report by Credit Suisse First Boston systemwide passenger yields for July were off by 20 percent year-on-year due, largely it claimed, to major discounts made to recapture market share.
After the May accident in which a Hong Kong-bound 747 broke apart over the Taiwan Strait, passenger loads for the airline fell by 50 percent along some routes.
The accident, the fourth since 1994, has brought the number of deaths aboard CAL flights to 801 since 1970, making the airline the second deadliest in the world.
The fear among travelers was palpable last month when passenger loads for CAL along the route fell from 75 percent in May to 60 percent in June, according to company statistics.
While passenger loads at CAL fell, the numbers at its arch rival EVA Airways increased dramatically in the same period hitting 85 percent to 90 percent compared with the industry average of around 70 percent to 75 percent, according to company data.
EVA's encroachment on China Airline's capacity along the major-earning routes to Tokyo and Hong Kong and the lingering impact of the crash is seen by Credit Suisse as damaging to the carrier's profitability in the second half.
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