Trends in China Eastern’s segmental revenue growth
An operational summary of China Eastern Airlines Company Ltd. (Part 3 of 13)
Revenue growth
China Eastern Airlines derives ~83% of its revenue from passenger services and ~9% from cargo and mail. Its revenue has grown at four-year compounded annual growth rate (or CAGR) of 22.7% to 88,245 million renminbi in FY13 from 38,990 million renminbi in FY09. The rate of growth in revenue of the major Chinese airlines has declined over the last two years due to a slowdown in economic growth, not only in China but also in the global economy.
There was a decline in growth for major US airlines, including Delta Air Lines (DAL), United Continental Holdings (UAL), Alaska Air Group (ALK), JetBlue Airways Corporation (JBLU), and Southwest Airlines (LUV).
Impact of slowing global economic growth
Double-digit growth was reported by both Chinese and US airlines in FY10 and FY11. The global economy had just recovered from the recession that lasted from December 2007 to June 2009, after the US subprime mortgage crisis had a ripple effect all over the world. Again in FY12, unemployment increased due to problems in the European and US economies, which led to a slowdown in growth.
The airline industry is strongly related to economic growth. Consumers spend on leisure travel only when disposable income rises, and companies spend on business travel when corporate profits rise. Growth fell to single digits in FY12 and FY13. Refer to China Southern one of China aviation industry’s Big 3 players for further details on the industry.
Segmental revenue performance
In FY13, China Eastern (CEA) recorded a year-over-year revenue growth of 3.5%, while its competitor China Southern’s (ZNH) revenue declined by 1%. China Eastern’s revenue growth was driven by a 2% increase in passenger revenue and a ~33% increase in revenue from other sources. These income sources include tour operations, ground service, cargo handling, and commissions. The share of revenue from other sources increased from 6.8% in FY12 to 8.7% in FY13.
The increase in total operating revenue was offset slightly by a 5% decline in cargo revenue, which has also been decreasing over the years. The decline in cargo revenue was due to lower yield and a decrease in volume. Cargo yield decreased at a CAGR of 7% to 1.57 renminbi in FY13 from 1.95 renminbi in FY10. The weight of cargo transported decreased to 1,410 million kilograms from 1,464 million kilograms in FY10.
In the next article, we’ll discuss more on volume and yield growth trend for China Eastern’s passenger segment.
Browse this series on Market Realist:
