THE three largest airlines in China are likely to report their strongest annual profits in years this week, as soaring travel demand and foreign exchange gains more than make up for a drop in income-per-passenger and the rising cost of fuel.

Analysts expect China Southern Airlines Co., the country’s largest carrier by passenger numbers, to report net income today of about 6.4 billion yuan (US$1.01 billion), its highest in 11 years as a listed firm.

Later in the week, Air China Ltd. is expected to report its biggest profit since 2010, and China Eastern Airlines Corp. is forecast to book its best result since at least 1996.

Driving profit is a tourism boom which saw more than five billion domestic trips made last year, 12.8 percent over 2016, plus 129 million overseas trips, up 5.7 percent, showed data from the China National Tourism Administration.

Foreign exchange gains are also likely to add “a few billion yuan” to each carrier’s earnings, analysts said. The yuan has risen about 10 percent in value against the U.S. dollar since the start of 2017. This has helped cut the cost of financing aircraft purchases with dollar-denominated loans.

“[Profits] are likely to be very strong,” said Daiwa Securities analyst Kelvin Lau in Hong Kong. “But the major focus will be more on how the yields — especially now with fuel costs coming up — can mitigate cost impact.”

The rate at which the airlines have bought planes and opened less-profitable international routes has outpaced passenger growth, impacting returns. China Southern, for instance, reported a passenger yield of 0.50 yuan per revenue passenger kilometer in 2016, from 0.67 yuan in 2011.

As of June, the three carriers had a combined fleet of owned and leased aircraft of 1,924 planes, from 1,868 a year earlier. International routes opened last year include Guangzhou-Vientiane and Shanghai-Cebu.

The rising price of jet fuel, airlines’ single largest cost, is also eating into profits. As of March 16, the price has risen 28 percent year on year to US$78.2 per barrel, showed the International Air Transport Association’s jet fuel price monitor. (SD-Agencies)