AIR China Ltd.’s shares fell sharply yesterday after the carrier reported an annual profit that fell short of analysts’ forecasts due to higher-than-expected operating costs.

The carrier’s Hong Kong shares dipped as much as 7.4 percent in their worst day since early February, while its Shanghai shares dropped nearly 5 percent.

Air China said late Tuesday that 2017 net profit rose 6.3 percent to 7.24 billion yuan (US$1.15 billion), marking its strongest profit growth since 2011. However, it fell below a 9.22 billion yuan average estimate from 17 analysts in a poll. Revenue rose 7.7 percent to 121.4 billion yuan.

The earnings were “a disappointment to the market,” BOCOM International analyst Geoffrey Cheng said in a note. “Fuel cost, aircraft and engine operating lease expenses, and repair and maintenance costs surprised us on the upside.”

The firm said fuel costs jumped 29.2 percent to 6.42 billion yuan, contributing to a 15 percent rise in operating expenses.

Unlike many of their overseas peers, Chinese airlines do not hedge fuel buys after they suffered heavy losses in 2008. This helped when oil prices plunged in mid-2014 but now leaves them vulnerable as prices rise.

At a press briefing yesterday when asked about its interest in the newly-launched yuan-denominated oil futures, Air China’s board secretary Zhou Feng said the company has been keeping a close eye on the development, but has not yet formulated plans to use the contract to hedge its fuel costs.

Air China’s passenger yield fell 0.45 percent in 2017, even though passenger numbers were up 5.2 percent. Luo Yong, Air China’s managing director for marketing, said the firm had raised ticket prices across international and domestic routes, but was being impacted by excess capacity on certain routes. (SD-Agencies)