China Eastern Airlines Co Ltd reported that profits for 2002 rose 28.1 percent year-on-year, but the increase was still less than what analysts expected.

The company's net profit for the fiscal year, which ended on December 31, was 124 million yuan (US$14.94 million). When a one-time government subsidy is removed, however, profits for the year were only 67 million yuan, a drop of 39.74 percent from a year earlier.

Last year, the company received a one-time grant of 54.81 million yuan from the government, "mainly to subsidize some projects the company had taken up and to cover the cost of shifting flights to the distant Pudong International Airport," said Luo Zhuping, board secretary of China Eastern.

Industry analysts attribute the drop in profits to fare discounts and rising operating costs.

Revenue from its core business of passenger and cargo transportation rose 4.29 percent year-on-year to 13.39 billion yuan.

Passenger traffic rose 14.43 percent year-on-year to 18.20 billion passenger-kilometers last year. Cargo and mail traffic rose 7.66 percent to 1.02 billion ton-kilometers.

"The company's business volume growth is in line with the growth rate of the country's air industry, which maintains an annual growth rate of between 10 and 15 percent," said Qiu Yanying, an industry analyst with China Securities.

Despite that, the company's average yield per passenger, which measures the profitability of each seat, was down 8.5 percent last year.

"Fierce competition on the domestic market has forced airline firms to offer discounts on their air tickets, which dragged down revenue," said Qiu.

Sales in the domestic market dropped 4.49 percent to 5.04 billion yuan, though passenger volume grew by 13.41 percent from the previous year.

With the rise in revenue, operating costs also increased.

(eastday.com April 9, 2003)