Boston, MA 09/03/2014 (wallstreetpr) – After closing lower on Friday, China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA) has started the week on a positive note. The surge in price cannot overshadow poor performance of the airline company in the first half of the year. The profits plunged by as much as 100% in the first half of the year. Following the earnings, CEA stocks can take a big hit in coming days as they are trading at nearly 14 times trailing earnings and are much more expensive than Delta Air Lines, Inc.(NYSE:DAL) trading at around three times trailing earnings.
The financial performance
China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA) reported a sharp decline of 97.7% in its net profit in the first six months of 2014. The net profit came at 14 million yuan that was made on revenue of 42.59 billion yuan in the first half of the year. The geopolitical instability, the decline in high-end business travelers and competition from the high-speed railway services, are the main factors leading a decline in profits.
China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA) and other low-cost carriers are faced with the challenge of establishing a low-cost base. Also, it needs clarity on the regulatory environment as to what the legal bodies will permit low-cost carriers to do. The airline expects the regulatory body to launch new LCC with a thorough low-cost offering. Some of the support came from the last year’s reforms where Beijing lifted the six-year ban imposed on the formation of new airlines.
The silver lining
China Eastern Airlines Corp. Ltd. (ADR) (NYSE:CEA) and other airlines were able to offset part of losses due to the unprecedented policy change done in last year. The key will be to offer the services for the budget travelers as well as tourists who want to travel domestically or within Asia region using the low cost-carriers. The Chinese central government wants the companies like China eastern to service customers like Southwest Airlines Co (NYSE:LUV) do in the U.S.
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