<Earnings First Take!> 2H21 results slightly below expectations
What’s new?
- Air China reported FY21 net loss of RMB16.9bn, a steeper loss compared to FY20 (RMB14.4bn), and towards the higher end of its net loss warning range of RMB14.5-17.0bn.
- Wider net losses during the period primarily driven by lower air passenger traffic amid sporadic lockdowns in China, higher jet fuel prices and employee costs, and lower quantum of FX gains in 2H21
- Healthier passenger and cargo yields, coupled with surprise contribution from CX at the associates level tempered the negative impact of lower passenger/cargo volumes
- Air China has plans to take delivery of 46 and 15 aircraft in FY22 and FY23 respectively.
Our thoughts:
- Improvement in passenger yields is encouraging – despite stiff competition in the domestic market (diversion of international capacity into domestic market), Air China’s domestic passenger yields rose to 97% of pre-pandemic levels in 2H21, up from 88% in 1H21.
- Omicron will weigh on domestic passenger volumes in the near-term – China’s government announced that it will maintain a dynamic zero-COVID strategy, which suggests that lockdowns (albeit shorter in duration) could occur at a higher frequency
- Elevated jet fuel prices will also be a drag on profitability – any improvement in unit costs in FY22 will be constrained by the rapid ascent in jet fuel prices
- Unlikely to see FX gains in FY22 again – Air China booked FX gains of RMB1.2bn in FY21, down from RMB3.6bn in FY20. The absence of these FX gains in FY22, or potentially FX losses could hinder the airline’s return into the black.
- Sluggish turnaround at Cathay Pacific could hurt Air China’s bottom line – we currently anticipate Cathay to remain in the red in FY22F before turning profitable again in FY23F, though with a narrower net loss of HK$5,091m in FY22F vs HK$6,123m in FY21
- More to follow after the analyst briefing in the afternoon (31st March).
| P&L Breakdown (In RMB Millions) | ||||||||
| 1H19 | 2H19 | 1H20 | 2H20 | 1H21 | 2H21 | y-o-y change | h-o-h change | |
| Passenger revenue | 59,850.5 | 64,674.1 | 22,948.3 | 32,778.5 | 30,895.2 | 27,421.5 | -16% | -11% |
| Cargo revenue | 2,830.1 | 2,902.1 | 4,190.5 | 4,362.9 | 4,575.3 | 6,538.0 | 50% | 43% |
| Others | 4,564 | 5,419 | 4,375 | 5,206 | 4,482 | 4,690 | -10% | 5% |
| Total revenue | 67,245 | 72,995 | 31,513 | 42,347 | 39,953 | 38,649 | -9% | -3% |
| EBITDA | 17,045 | 18,876 | 3,283 | 5,957 | 4,289 | -217 | -104% | -105% |
| Net profit | 3,144 | 3,276 | -9,440 | -4,964 | -6,781 | -9,854 | nm | nm |
| EBITDA margin | 25.3% | 25.9% | 10.4% | 14.1% | 10.7% | -0.6% | ||
| Operational Stats | ||||||||
| Capacity | ||||||||
| ASK (m p-km) | 141,728 | 146,059 | 65,566 | 90,515 | 82,500 | 69,945 | -23% | -15% |
| AFTK (m tonne-km) | 5,534 | 5,418 | 4,035 | 5,599 | 5,494 | 5,267 | -6% | -4% |
| ATK (m tonne-km) | 18,319 | 18,598 | 9,943 | 13,743 | 12,928 | 11,562 | -16% | -11% |
| Traffic | ||||||||
| RPK (m p-km) | 114,784 | 118,392 | 44,222 | 65,608 | 58,253 | 46,373 | -29% | -20% |
| RFTK (m tonne-km) | 2,333 | 2,445 | 1,459 | 2,099 | 2,067 | 2,235 | 6% | 8% |
| Yields | ||||||||
| Yield per RPK (RMB per p-km) | 0.52 | 0.55 | 0.52 | 0.50 | 0.53 | 0.59 | 18% | 11% |
| Yield per RFTK (RMB per tonne) | 1.21 | 1.19 | 2.87 | 2.08 | 2.21 | 2.92 | 41% | 32% |
| Unit Costs | ||||||||
| Total unit cost per ATK including fuel (RMB per tonne) | 3.30 | 3.50 | 3.85 | 3.38 | 3.56 | 4.27 | 26% | 20% |
| Total unit cost per ATK excluding fuel (RMB per tonne) | 2.34 | 2.51 | 3.16 | 2.79 | 2.79 | 3.33 | 19% | 20% |