Guangzhou-based is flagging a US$1.7 billion loss for the 2020 calendar year. Citing COVID-19 and the subsequent drop in travel demand, the airline lodged documents with the Hong Kong Stock Exchange on Friday warning of the loss.

China Southern Airlines is an unusual beast. While the Chinese Government via state-owned enterprises has a majority slice of the China Southern pie, private investors can also own a slice of the pie via publicly traded stocks on the Hong Kong Stock Exchange. It’s a nice marriage of convenience between old school communism and capitalism. It also means China Southern Airlines has to submit publicly accessible reports and information to the Hong Kong Stock Exchange.

China Southern blames COVID-19 and its fallout

With the 2020 results due to be posted soon, China Southern Airlines has put the bad news out there ahead of schedule.

After posting a profit of nearly US$418 million in the 2019 calendar year, China Southern now forecasts a loss of approximately $1.7 billion over 2020.

“Affected by the COVID-19 pandemic, the traveling willingness of passengers dropped sharply, which had a significant impact on the global aviation industry,” China Southern Airlines told the Hong Kong Stock Exchange.

China Southern Airlines says the passenger capacity (measured by available seat kilometers)
and revenue passenger kilometers of the company decreased by 37.59% and 46.15%,
respectively as compared to the 2019 period.  The airline adds the passenger capacity and
revenue passenger kilometers for international routes decreased by 80.63% and 84.88%,
respectively as compared to the 2019 calendar year.

“According, the Company expects to record a loss in the operating results for the year of 2020,” China Southern said.

Decent passenger loads, not so decent available seat kilometers over 2020

Going by seat capacity alone, China Southern Airlines has flown into the northern 2020/21 winter, the world’s third-biggest airline. According to airline fleet database, China Southern has 622 aircraft. While 113 of those planes are parked, 509 China Southern Airlines aircraft are still flying. Between December 2020 and February 2021 inclusive, China Southern Airlines has 58,036,493 seats available.

Just two weeks ago, Simple Flying’s Chris Loh reported China Southern’s passenger load factor was 71.46% over 2020. That’s 11.35% down from the previous year. Chris Loh says that while this may sound impressive, given what a tough year 2020 was, load factors aren’t the best indication of an airline’s financial well being.

“After all, the airline (or any airline) could operate one aircraft once per week, fill it with passengers, and claim a 100% load factor.”

Domestic flying underwrites China Southern Airlines

Capacity for passengers, measured in available seat kilometers, is a better indicator of an airline’s financial performance. Compared to 2019, available seat kilometers dropped 37.59% in 2020. Breaking the available seat kilometers down by market segment,  available seat kilometers were 80.63% down over medium and long-haul international routes and 87.39% down over short-haul international routes.

What saved China Southern Airlines in 2020 was its domestic flying. That fell by just 17.55%. The health of China’s domestic aviation scene was the subject of much speculation in 2020. Chinese Government restrictions (such as the current restrictions on domestic travel over the Chinese Lunar New Year) are cramping domestic flying. However, domestic flying is underwriting China Southern’s international flying.

One thing is for sure, without their domestic market, China Southern’s financial performance in 2020 would be far worse than they are forewarning us to expect.

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