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Shanghai Airlines plunges deeper into the red

By Wang Ying (China Daily)
Updated: 2009-03-26 07:48

Domestic air carrier Shanghai Airlines yesterday said full year net loss widened to 1.25 billion yuan with its shares facing special trading limits of 5 percent from today.

The company said the wider net loss of 1.25 billion yuan from a loss of 435.12 million yuan in 2007, had an impact on its earnings per share (EPS), which declined to minus 1.155 yuan from 0.4 yuan a year earlier.

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Shanghai Airlines said multiple factors like the Sichuan earthquake, the economic slowdown in the second half of 2008 and soaring jet fuel prices contributed to its losses. The falling orders at its unit Shanghai Airlines Cargo International Co Ltd caused a loss of 145 million yuan.

This is the second straight year that Shanghai Airlines is in the red. As per listing regulations, the company could get delisted from the Shanghai bourse if it fails to turn the tide within a year, said Zhang Xun, analyst, TX Investment Consulting Co.

In February, Xu Junmin, board secretary with Shanghai Airlines, said that the carrier plans to become profitable by cutting costs, expanding markets, and flight adjustments.

Analysts, however, are still pessimistic about the carrier's profitability in the short term as the aviation industry is facing hard times. "Shanghai Airlines' local rival China Eastern is also facing a similar situation now, and all the top three carriers are expected to be in the red for 2008," said Zhang.

On Tuesday, the International Air Transport Association (IATA) announced a revised outlook for the global air transport industry with predicted losses of $4.7 billion this year, a sharp increase from IATA's forecast of $2.5 billion last December, reflecting the rapid worsening of the global economic conditions.

"The state of the airline industry is grim. Demand has deteriorated much more rapidly with the economic slowdown than could have been anticipated even a few months ago. Our loss forecast for this year is now $4.7 billion. Combined with an industry debt of $170 billion, the pressure on the industry balance sheet is extreme," said Giovanni Bisignani, IATA's director general and CEO.