Analysts at UOB group explained that China’s Big Three state-owned airlines (China Southern Airlines Co., China Eastern Airlines Corp., and Air China Ltd.) combined suffered about US$2.5 billion in foreign-exchange losses last year after the country unexpectedly devalued the yuan in August, squeezing passenger yields and limiting profit gains from declining oil prices.
Foreign-exchange losses skyrocketed after the yuan last year recorded its biggest annual loss since 1994, sliding 4.5%, after the devaluation by China’s central bank. That triggered volatility in currency-exchange markets, creating uncertainty for airlines whose aircraft purchases are denominated in USD.
Though the Chinese carriers don’t hedge against big swings in fuel prices like Cathay Pacific Airways Ltd. and Singapore Airlines Ltd. do, foreign exchange losses limited the airlines’ ability to fully reap the cost benefits of crude-oil prices that sank to their lowest in more than a decade. The airlines have responded by cutting their dollar debt.
China Southern slashed its debt by about 40% by the end of 2015 from a year earlier, though US dollar debt was still nearly 62% of its total. Air China, which cut its liability by more than 8%, still had 73.5% of its debt in US dollars at the end of last year. China Eastern said it brought its percentage of US dollar debt down to 53% at the end of last month.”
(Market News Provided by FXstreet)