Air China's FY24 Earnings: Revenue Growth Masks Persistent Margin Pressures

Air China Limited (AIRC.L) reported its FY24 results, revealing a 18.1% revenue surge to RMB166.699 billion, driven by rebounding passenger demand and strong international expansion. However, the airline’s net loss widened to RMB2.445 billion, underscoring challenges in managing soaring operational costs. Below is a deep dive into the financials and implications for investors.

Revenue Growth: A Mixed Blessing

The airline’s total revenue hit RMB166.699 billion in FY24, a significant jump from RMB141.100 billion in FY23. Key drivers included:
- Passenger Revenue: Up 16.4% to RMB151.789 billion, reflecting post-pandemic travel demand.
- International Markets: Revenue surged 77.8% to RMB43.089 billion, benefiting from reopened borders and stronger demand for long-haul routes.
- Cargo and Mail: Expanded 78.2% to RMB7.414 billion, though this segment remains smaller compared to passenger operations.

Despite these gains, Air China’s net loss attributable to equity shareholders rose to RMB233 million in FY24 from RMB1.038 billion in FY23. The total consolidated loss (including non-controlling interests) was RMB2.445 billion, a 56.6% increase from FY23.

Cost Drivers: Margin Compression in Full View

Operating costs rose 17.3% to RMB171.8 billion, outpacing revenue growth and compressing the operating margin to just 1.33% (from 2.05% in FY23). Key cost drivers include:
1. Jet Fuel Costs: Up 15% to RMB53.72 billion, driven by higher prices and increased flight volumes.
2. Employee Compensation: Rose 16.9% to RMB34.27 billion, likely due to post-pandemic wage adjustments and staffing needs.
3. Depreciation & Amortization: Increased 7.4% to RMB29.10 billion, reflecting asset wear-and-tear and new investments.
4. Aircraft Maintenance: Jumped 29.6% to RMB12.85 billion, signaling rising costs to maintain a growing fleet.

These expenses overshadowed revenue growth, leading to an operating loss of RMB2.24 billion for core airline operations—a 7.6% increase from FY23’s RMB2.08 billion loss.

Segment Performance: Airlines Struggle, Ancillaries Thrive

• Airline Operations: Accounted for 96.6% of revenue but reported a segment loss of RMB2.24 billion. The passenger-heavy business model remains vulnerable to cost pressures.
• Other Operations: Including aircraft engineering and services, saw revenue grow 22.6% to RMB5.31 billion and turned a profit of RMB795 million (up 67.6% from FY23). This segment’s resilience highlights opportunities in ancillary services.

Liquidity: A Tightrope Walk

Air China’s liquidity position is precarious, with current liabilities exceeding current assets by RMB96.92 billion. However, management emphasized sufficient liquidity through RMB144.1 billion in unused credit facilities, supporting its “going concern” status. Cash reserves grew 40% to RMB21.04 billion, but debt servicing remains a concern:
- Interest-Bearing Borrowings: Rose to RMB84.84 billion (non-current) and RMB74.55 billion (current), totaling RMB159.39 billion.

Investment Outlook: Growth vs. Profitability

Air China’s FY24 results present a paradox: revenue growth is robust, but profitability lags due to cost inflation. The stock price (AIRC.L) has underperformed peers over the past five years, reflecting investor skepticism about its ability to manage margins. Key considerations for investors include:
- Cost Control: Reducing fuel and labor expenses will be critical. Fuel hedging or efficiency gains could alleviate pressure.
- Debt Management: High leverage (total liabilities of RMB334.4 billion vs. equity of RMB40.9 billion) requires cautious capital allocation.
- Dividend Policy: No dividends proposed for FY24 or FY23, prioritizing liquidity over shareholder returns—a potential red flag for income-focused investors.

Conclusion: A High-Risk, High-Reward Bet

Air China’s FY24 results reveal a company balancing revenue growth with unsustainable cost structures. While passenger demand and international expansion offer hope, margin pressures and debt risks cloud the outlook. The stock’s 5-year underperformance (likely reflected in the visual above) suggests markets are pricing in these challenges.

Investors should proceed cautiously. The airline’s liquidity cushion and revenue momentum provide a floor, but meaningful profit improvement hinges on cost discipline and structural reforms. For now, Air China remains a high-risk play on China’s aviation recovery—a bet best suited for aggressive investors with a long-term horizon.

Data sources: Air China FY24 Earnings Report, company filings.