China Southern returned to profitability in Q3 on the back of a strong domestic market. The airline saw a $164 million (CNY1.1bn) profit, while revenue dropped by nearly 40%. Domestic flights have returned to 2019 levels in China, greatly boosting airline revenues. The numbers come just days after the airline once again became the biggest in the world.
Return to profits
China Southern’s Q3 financial statement took many by surprise, with the airline announcing a small profit for the quarter. The airline reported an operating profit of $163mn (CNY1.1bn), while net profits stood at $106.2 million (CNY711mn). Revenue, however, was still 40% than the same quarter last year, mainly due to a lack of international flights.
The airline also managed to bring down expenses by 37% this quarter, helping it maximize income, according to FlightGlobal. Combined with a fully-recovered domestic market, China Southern has clawed it’s way back into the black.
While this quarter’s numbers are impressive, the airline is still looking at a steep loss for the year ending September 30th. Operating revenues have fallen 44% this year, while net losses sit at $1.1bn for the year, a sharp reversal from last year’s $600mn profit for the quarter.
Domestic market growth
Chinese aviation hit a landmark goal in September: a full recovery of the domestic market. The market has been slowly growing towards that goal since the summer, helping airlines survive the crisis without international flights. China is the world’s second-largest aviation market, making a full domestic recovery a significant achievement.
China was the first country to be hit by the coronavirus, causing the aviation market to collapse in February. However, since April, the country has seen limited local transmission of COVID-19, allowing domestic flights to slowly grow. According to FlightRadar24.com, the market has now exceeded 2019 capacity, reaching nearly 105% in August and only growing further from there.
Passenger numbers aren’t far behind either, with load factors also approaching 2019 levels. In September, passenger numbers recovered to 98% year-on-year, according to the CAAC data in AINOnline. This number was likely exceeded in October thanks to Gold Week celebrations during which 13 million passengers took domestic flights, according to FlightGlobal.
International flights slower
While China’s domestic market is exceeding last year’s numbers, this has come at the cost of international flights. Flights in and out of China remain heavily restricted as the country limits the number of possible imported cases.
Foreign carriers have also been struggling to secure slots, leading to countries such as the US and France going as far as to ban Chinese carriers to secure flying rights. Since then, China has allowed limited flights to restart to key cities, including Beijing.
China Southern’s profits point to one (or perhaps the only) successful strategy during the pandemic: focusing on the domestic and cargo markets. This has allowed countries such as South Korea and Taiwan to turn profits as well, with China doing so at a much larger scale.