Air China , the country’s flag carrier, said its first-quarter earnings more than doubled as the domestic air travel market rebounded strongly with the recovering economy.

Air China’s outlook is expected to remain bright for the rest of the year with a lift from solid air traffic growth in China, which may overtake Japan as the world’s second-largest economy this year, industry analysts said.

Chinese airlines faced severe headwinds in 2008 as a slowing economy dented air travel, but the situation started to improve in 2009 helped by government cash aid, fee waivers and a warming up of the domestic air travel market.

The carrier’s first-quarter earnings came to 2.17 billion yuan ($317.8 million) under Chinese accounting standards, well ahead of the average forecast of 735.1 million yuan from three analysts polled by Reuters, who had expected a decline due to heavy gains in the year-ago period from fuel-hedging contracts.

Air China’s quarterly net profit was 981.2 million yuan a year earlier.

The airline reported a hefty 938 million yuan gain in the latest quarter from fair value changes in its jet fuel derivative contracts, in addition to strong investment gains.

Domestic Traffic
“2010 will be a good year ahead for Air China and other Chinese carriers. Domestic air traffic will continue its growth pattern and even international air travel has already started to pick up since late last year,” said Li Lei, an analyst with China Securities.

Air China Chairman Kong Dong gave similarly upbeat remarks earlier this month on the carrier’s financial performance for 2010.

The Beijing-based carrier also said it booked a 4.85 billion yuan net profit under international accounting standards for 2009, beating an average forecast of 4.7 billion yuan by 13 analysts polled by Thomson Reuters I/B/E/S. It had been saddled with a 9.26 billion yuan net loss a year earlier.

Air China recently agreed to set up a cargo venture with Cathay Pacific Airways to tap the country’s export and import business, now dominated by foreign rivals.

The venture will also give Air China a foothold in Shanghai and help it to compete more effectively in the major air hub with China Eastern, which now has nearly half of the local market, analysts said.

They added that Air China’s deal in March to hike its stake in privately run Shenzhen Airlines would enable it to better compete with China Southern Airlines, which dominates the market in south China. (Reuters)