CHINA Southern Airlines Co., China’s biggest airline by fleet size, has warned it will incur a net loss of between 300-350 million yuan (US$46-US$56 million) in the first quarter due to foreign exchange losses.

    The airline said in a statement yesterday that a fall in the yuan had increased its costs, pushing it into the red in the first three months of the year.

    A strong Chinese currency benefited Chinese airlines because they have a lot of non-yuan debt, particularly U.S. dollars, to finance the purchase of aircraft. But the weaker yuan is having a significant impact on their bottom lines. China Southern had net debt of 104.35 billion yuan at the end of last year.

    The yuan has fallen 2.8 percent so far this year, compared with a 2.8 percent rise in 2013. Although the sizes of the moves are not big, analysts say they are still a challenge for Chinese firms, which are not used to hedging currencies.

    A weaker yuan adds to the pressures on China’s airlines, which last year saw net profits drop by more than a quarter as intensifying competition weighed on ticket prices despite growth in air-travel demand. The other major Chinese carriers are Air China Ltd. and China Eastern Airlines Corp. They plan to release first-quarter results later in April.

    Despite the nation’s air-travel boom, the three carriers face rising pressure on yields, a measure of profitability, in the domestic market. The government is moving to liberalize the domestic airline market and promote the growth of budget airlines.

    Slower economic growth and a frugality campaign by President Xi Jinping had also weighed on sales of first and business-class tickets.

    (SD-Agencies)