Chinese airlines post profit declines on fuel costs

China Southern Airlines (ZNH.NYSE, 600029.SH, 1055.HKG) and Air China (AIRC.LSE, 601111.SH, 0753.HKG) posted lower profits for the first quarter due to rising fuel costs, The Wall Street Journal reported. Profit fell 86% year-on-year for Air China and 74% year-on-year for China Southern Airlines, despite revenue increases of 7.7% and 16%, respectively. Much of the lower profitability could be attributed to higher fuel prices; PetroChina (PTR.NYSE, 601857.SH, 0857.HKG) said in its earnings released Thursday that the average oil selling price rose 15% during the same quarter. Fuel hedging options remain limited for Chinese airlines; the State-Owned Assets Supervision and Administration Commission restricted derivates trading after Chinese airlines incurred huge losses from the trading in 2008. While Chinese airlines can still in theory hedge fuel prices, tightened rules on the quantity and duration of futures contracts deter many firms. Analysts expect China Eastern Airlines (CEA.NYSE, 600115.SH, 0670.HKG) to report similar profit declines when it releases earnings on Friday.