THE yuan’s nosedive has put a damper on the earnings of Chinese airlines, already flying low through an economic slowdown, with half-empty premier cabins.

    Air China Ltd. warned last week that its first-half earnings would fall as much as 65 percent from the 1.12 billion yuan (US$180.5 million) it booked for the same period a year ago. Rival China Southern Airlines Co. warned July 11 it could post a loss of up to 1.1 billion yuan for the first half. That compared with a year-ago net profit of 302 million yuan.

    The yuan has depreciated about 3 percent since China allowed the currency to slide in January, and both airlines blame slower growth and yuan depreciation for their poor performance.

    A UBS report predicts that the yuan will stabilize around its current relatively weak levels. It was more or less constant appreciation of the yuan since 2005 that helped Chinese airlines increase their formerly handsome earnings.

    Rapid expansion of China’s airlines has come at the cost of a huge amount of foreign currency debt. Aircraft and fuel do not come cheap and thus any decline in the yuan can considerably drive up costs.

    The problems of the Chinese aviation industry run much deeper than some anticipated profit warnings. It has been grappling with weak earnings since 2010, when China Southern Airlines, Air China and China Eastern Airlines — China’s big three — made more than 23 billion yuan in net profits. Each raked in more than 1 billion yuan in the first half of 2013, purely on the back of yuan appreciation.

    “The industry is slowing due to the weaker economy and the spread of bullet train networks,” said Li Jun, analyst with China Galaxy Securities.

    The big three plus Hainan Airlines have been striving to reduce costs, lowering rates paid to domestic ticketing agencies from 3 percent to 2 percent. Last year, Air China spent 7.2 billion yuan on sales. (Xinhua)