Published: Wednesday, 28 Oct 2009 | 2:02 AM ET

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Air China returned to the black in the third quarter with a boost from fuel-hedging gains and a strong recovery in domestic air travel but its outlook is uncertain as global air traffic remains weak.

Greg Baker / AP

Air China, the country's flag carrier, booked 885.3 million yuan ($129.6 million) in net profit under Chinese accounting standards in the three-month period, compared with a net loss of 1.97 billion yuan a year earlier, the carrier said on Tuesday.

Its H-shares outperformed the broader market, rising as much as 3 percent before paring gains to 1.2 percent on Wednesday. Its Shanghai shares advanced as much as 1.7 percent.

"Chinese airlines have benefited from a rebound in domestic air travel since the beginning of the year. Volume on the international routes is also improving in the summer tourism season," said Yu Jianjun, an industry analyst with Huatai Securities.

"But I have to say hedging gains are still the biggest help to their quarterly bottom line, just like in the first half."

Air China booked a gain of 553.6 million yuan from changes in asset value, mostly from fuel hedging gains, compared with a loss of 899.6 million a year earlier.

Air China's H shares, traded in Hong Kong, closed down 2.04 percent at HK$4.32 on Tuesday, lagging a 1.86 percent fall in the benchmark Hang Seng Index. They have jumped 80 percent so far this year, leading a 54 percent gain in the benchmark.

Normal Growth Pattern

China's airlines faced strong headwinds last year as a slowing economy hit demand for air travel, pushing the three biggest carriers into a combined loss of more than $4 billion.

Their plight prompted Beijing to provide big cash infusions to Air China's two chief rivals, China Eastern and China Southern. Air China has yet to receive a hand-out.

Domestic air traffic in China has resumed its normal growth pattern this year, as Beijing's aggressive economic stimulus lifted consumer confidence.

From January to September, Air China carried 29.5 million passengers, up 17 percent from a year earlier. Volume on international routes fell nearly 3 percent to 3.89 million passengers.

Cargo volume fell 2.74 percent during the period as the global downturn continued to weigh on foreign trade.

Earlier this year, Air China paid HK$6.3 billion ($813 million) for a further 12.5 percent of Cathay Pacific Airways, taking its stake in Hong Kong's dominant airline to 29.99 percent.

Closer ties with Cathay, which owns 18.01 percent of Air China, will help the Chinese carrier to expand its international routes, analysts said.

China Southern, which posted a 284 million yuan profit in the third quarter against a loss of 830 million yuan a year ago, was up as much as 2 percent in both Hong Kong and Shanghai.

China Eastern reversed course after edging up 0.9 percent in Hong Kong and 1.3 percent in Shanghai. It posted a slight profit of 23.16 million yuan but it was a marked improvement from a 2.3 billion yuan loss a year ago.

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