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Earnings at Air China, China Eastern Airlines decline in 1Q as weaker yuan raises costs

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HONG KONG - China's major state-owned airlines have posted lower quarterly profits because recent weakness in the yuan has raised costs.

Air China Ltd. and China Eastern Airlines Corp. said late Tuesday that earnings were hit by the change in China's currency, which had been gradually strengthening for years until it changed course in 2014 and started depreciating.

Profitability at Chinese airlines, which have dozens of new airplanes on order, is highly vulnerable to exchange rate fluctuations. While they earn most of their revenue in yuan, major expenses such as fuel and new airplanes are priced in dollars.

Airlines aren't the only Chinese companies hurting from the yuan, which fell about 2.6 per cent against the dollar in the first quarter. Oil refiner Sinopec said this week that profits were squeezed as the stronger dollar made it more costly to buy oil.

Beijing-based Air China reported net profit in the January-March period fell to 92.7 million yuan ($14.8 million), down 63 per cent from 252.3 million yuan in the same period last year. Revenue rose 7.5 per cent to 24.4 billion yuan.

The company said the profit drop was "mainly due to net foreign exchange losses arising from the depreciation of renminbi." But it said operating profit rose because of efficiency gains and lower jet fuel prices.

China Eastern, based in Shanghai, said its net loss widened to 205 million yuan from 131 million yuan last year. Revenue rose to 21.8 billion yuan.

Currency fluctuations have also hurt earnings at the country's third big state-owned carrier, China Southern Airlines, which this week said it swung to a 324 million yuan loss in the first quarter following a 36 million yuan profit a year ago.

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