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China Eastern Airlines cuts investment to curb losses

(Xinhua)
Updated: 2009-04-16 15:53

China Eastern Airlines has announced that it has slashed costs and investments by more than 800 million yuan ($117.09 million)in the last four months to offset huge losses last year.

The company said no jobs would be lost in the cost-cutting program, which ran from December till the end of March, said Li Jiang, a China Eastern public relations manager, on Thursday.

However, the company would encourage staff aged 57 or over to retire, but the details of the plan had yet to be finalized, said Li.

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The airline would cut aircraft purchases to a maximum of 13 in 2009, at least 10 fewer than previously planned.

The company had also suspended 29 investment projects with a total value of 3.15 billion yuan, including establishing a branch company in Tibet.

"There is little room in further cost cutting, but we will try to increase income by expanding our market share," said Li.

China Eastern would increase the frequency of profitable scheduled flights, to strive for a 40-percent market share in Shanghai and a 45-percent market share in Kunming.

The company reported a net loss of 13.9 billion yuan in 2008, due to weak demand triggered by the economic downturn.

The losses included 6.4 billion yuan in funds to hedge against oil price rises last year.

The airline issued an annual report late Wednesday saying its performance was also hurt by natural disasters, including severe winter weather in south China in early 2008 and the May 12 earthquake.

Zeng Xu, an analyst with Shanghai-based Sinolink Securities Co, said the losses were in line with the market expectations, and some of the 6.4 billion yuan hedge fund could be offset in the future if "the fuel oil price keeps on rising."

The company reported 41.8 billion yuan of operating revenue, down 3.9 percent from that of the previous year.

The airline received a capital injection of 7 billion yuan of state aid last year.

China Southern Airlines said in its 2008 annual report on Tuesday that it recorded a net loss of 4.8 billion yuan because of weak demand and higher fuel costs.

Although Air China has yet to issue its 2008 annual report, Sinolink Securities predict the entire Chinese civil aviation industry would report losses totaling 30 billion yuan.