2H21 results ahead of expectations
What’s new?
- China Southern Airlines (CSA) announced full-year net loss of RMB12.1bn, in line with its profit warning range of RMB11.3-12.8bn; however, barring asset impairment losses of RMB2.6bn, CSA’s core net losses would have surpassed expectations
- Wider net losses in 2H21 primarily driven by lower air passenger traffic amid sporadic lockdowns in China, higher jet fuel prices and lower quantum of FX gains during the period
- Increase in passenger and cargo yields mitigated the negative impact of lower passenger/cargo volumes in 2H21
- The airline has plans to take delivery of 103 B737-Max through the end of 2024 (39 in 2022); 737 fleet projected to reach 495 aircraft by end-2024; A320 fleet will remain stable at around 334 aircraft
Our thoughts:
- Improvement in passenger yields is encouraging – despite stiff competition in the domestic market (diversion of international capacity into domestic market), CSA’s domestic passenger yield rose above pre-pandemic levels to 106% of 2019’s level in 2H21, up from 99% 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 – CSA booked FX gains of RMB1.6bn in FY21, down from RMB3.5bn in FY20. The absence of these FX gains in FY22, or potentially FX losses could hinder the airline’s return into the black.
- 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 | 65,617 | 72,885 | 28,793 | 41,741 | 39,691 | 35,701 | 38% | -5% |
| Cargo revenue | 4,409 | 5,206 | 7,667 | 8,826 | 8,866 | 11,021 | 16% | 0% |
| Others | 2,913 | 3,292 | 2,504 | 3,030 | 3,019 | 3,346 | 21% | 0% |
| Total revenue | 72,939 | 81,383 | 38,964 | 53,597 | 51,576 | 50,068 | 32% | -4% |
| EBITDA | 16,907 | 18,551 | 5,571 | 11,172 | 9,047 | 7,879 | -29% | -13% |
| Net profit | 1,682 | 958 | -8,179 | -2,668 | -4,690 | -7,416 | nm | nm |
| EBITDA margin | 23.2% | 22.8% | 14.3% | 20.8% | 17.5% | 15.7% | ||
| Operational Stats | ||||||||
| Capacity | ||||||||
| ASK (m p-km) | 166,017 | 178,045 | 85,759 | 128,998 | 114,307 | 99,615 | -23% | -13% |
| AFTK (m tonne-km) | 7,436 | 8,033 | 6,407 | 8,157 | 7,573 | 6,692 | -18% | -12% |
| ATK (m tonne-km) | 22,380 | 24,054 | 14,123 | 19,769 | 17,861 | 15,657 | -21% | -12% |
| Traffic | ||||||||
| RPK (m p-km) | 137,210 | 147,710 | 57,859 | 95,581 | 84,219 | 68,207 | -29% | -19% |
| RFTK (m tonne-km) | 3,589 | 3,991 | 3,304 | 3,951 | 3,999 | 3,712 | -6% | -7% |
| Yields | ||||||||
| Yield per RPK (RMB per p-km) | 0.48 | 0.49 | 0.50 | 0.44 | 0.47 | 0.52 | 20% | 11% |
| Yield per RFTK (RMB per tonne) | 1.23 | 1.30 | 2.32 | 2.23 | 2.22 | 2.97 | 33% | 34% |
| Unit Costs | ||||||||
| Total unit cost per ATK including fuel (RMB per tonne) | 3.13 | 3.27 | 3.37 | 2.91 | 3.16 | 3.66 | 26% | 16% |
| Total unit cost per ATK excluding fuel (RMB per tonne) | 2.20 | 2.35 | 2.77 | 2.38 | 2.47 | 2.82 | 18% | 14% |