CHINA

Its been tough doing business in China - what with nasty fare pricing and oil costs all "managed" by the state. Fuel hedging gains helped China Eastern make a profit in the 1H09 despite a 15.6% fall in revenue. The airline remains bullish for the second half, saying economic growth in China remained strong and that it would benefit from World Expo which is being held in Shanghai next year. Readers might interested to know China's growth is estimated to be over 8% this year - an amazing number given the state of the world and the size of China.

China Eastern is one of China’s big three and reported a net profit of Rmb984.7m, compared with a loss of Rmb175.3m in the same period last year. The airline made a Rmb2.79bn profit from fuel hedging in the first six months of this year after a rise in oil price, contrasting with a Rmb15.3bn loss last year on hedging that led to the airline receiving Rmb7bn in state aid. Without that hedge it would have been an awful picture.

China Eastern’s performance is similar to that of Cathay Pacific, which reported a profit for the first half thanks to fuel hedge gains despite falling revenues. Domestic traffic rose 27% (wow!) from the same period last year, largely due to the state bail-out, offsetting large falls in demand on its international and regional routes. Clearly China's stimulus is a lot more successful than the one in the US.

Sales on international and regional routes dropped 38.3% and 22.3% respectively. The global financial crisis also hit its cargo arm, where sales fell 44.7%. Clearly the positive results could be based on an iffy situation which can be knocked over easily. So the airline is not out of the woods. The overall market has to improve considerably for confidence to really kick in.