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Posted on: Monday, October 22, 2007

Air China has sky-high hopes for coming year

By Tian Ying
Bloomberg News Service

BEIJING Air China Ltd., the country's biggest international carrier, aims to raise passenger numbers at least 15 percent next year as economic growth fuels demand for holiday and business trips.

The airline also expects to make a profit on overseas routes next year, Chairman Li Jiaxiang told reporters in Beijing. The carrier will likely fly 35 million to 38 million travelers this year, he added.

Chinese airlines, led by Air China and China Southern Airlines Co., have boosted passenger numbers on domestic and international routes as rising wages make flights affordable to more people. Air China's traffic next year will also be helped by the Beijing Olympics and the addition of services to Berlin, Istanbul and Warsaw, the first of 12 new overseas routes to be added during the next two years.

"With the Olympics coming, Air China will easily reach the volume target," said Ma Ying, an analyst with Haitong Securities Co. in Shanghai. "Still, Air China has a long way to go to catch up with Lufthansa and other foreign rivals on international routes due to its limited network." Deutsche Lufthansa AG is Germany's biggest carrier.

SINGAPORE SEEKS STAKE

Air China's parent is yet to decide how it will vote on Singapore Airlines Ltd.'s plan to buy a stake in China Eastern Airlines Corp., the country's third-largest carrier, said Li. The company owns 11 percent of China Eastern's Hong Kong-listed stock.

"We should take a friendly approach to ensure the mutual and beneficial development of the parties concerned," Li said. "We may buy more H shares of China Eastern if we expect good investment returns," he added.

Singapore Airlines and parent Temasek Holdings Pte agreed to buy a 24 percent stake in China Eastern for about $918 million last month. The deal needs approval from two-thirds of minority investors.

Air China's parent and Cathay Pacific Airways Ltd., Hong Kong's largest carrier, considered making a counter-offer. The two scrapped the plan, Air China said in a Sept. 22 statement without elaboration.

The Beijing-based carrier fell 4 percent to $2.91 on the Shanghai stock exchange. The stock has gained more than sixfold in the past year. The carrier's Hong Kong-listed shares have more than doubled this year.

Air China plans to make a profit on European routes this year and to cut losses on flights to North America and Australia, Li said. It expects to make a profit on overseas routes overall next year, depending on fuel prices and other factors, he added. Flights to Japan and South Korea are already profitable.

Air China's new destinations in 2009 will include Toronto and Rome. Outbound journeys from China have almost tripled in the last five years and may rise threefold to 100 million by 2015, according to the World Tourism Organization.

"To become a super carrier we need to strengthen our competitiveness" as well as having a bigger network and more bases, Li said.

The carrier flew 26.3 million passengers in the first nine months of the year, an 11 percent increase from a year earlier. It filled 66.8 percent of its seats in the period, 1.4 percentage points more than a year earlier.

CARGO VENTURE

Air China Cargo, the airline's freight unit, will probably make a profit in the second half, Li said. Still, the profit is unlikely to be enough to offset its first-half loss, he added, without elaboration.

Air China and Cathay Pacific may complete the formation of a Shanghai-based cargo venture by the end of the year, if they speed up preparations, Li said. The two companies have not yet started discussing whether Cathay Pacific will pay for its stake in the venture with freighters, Li added.

Cathay Pacific plans to transfer 10 cargo planes worth HK$10 billion ($1.3 billion) to the venture in exchange for a 49 percent stake, Sing Tao Daily reported on Sept 22.

Air China and Cathay Pacific own about 17.5 percent of each other. China's overseas air-cargo shipments are likely to grow 14 percent a year until 2009, according to the International Air Transport Association. Cargo volume rose 15 percent to 1.83 million tons in the first six months.