Chinese airlines tipped for record profits on tourism boom as yuan gains

China’s three largest airlines are likely to report their strongest annual profits in years this week, as soaring travel demand and foreign exchange gains more than make up for a drop-in income-per-passenger and the rising cost of fuel.

Analysts estimate China Southern Airlines Co Ltd, the country’s largest carrier by passenger numbers, will report net income on Monday of about 6.4 billion yuan ($1.01 billion), its highest in 11 years as a listed firm, showed data from Thomson Reuters.

Later in the week, Air China Ltd is expected to report its biggest profit since 2010, and China Eastern Airlines Corp Ltd is forecast to book its best result since at least 1996.

Driving profit is a tourism boom which saw more than 5 billion domestic trips made last year, 12.8 percent over 2016, plus 129 million overseas trips, up 5.7 percent, showed data from the China National Tourism Administration.

Foreign currency exchange yuan gains are also likely to add “a few billion Chinese yuan renminbi” to each carrier’s earnings, analysts said. The Chinese yuan currency has risen about 10 percent in value against the U.S. dollar since the start of 2017. This has helped cut the cost of financing aircraft purchases with dollar-denominated loans.

The rate at which the airlines have bought planes and opened less-profitable international routes has outpaced passenger growth, impacting returns. China Southern, for instance, reported a passenger yield of 0.50 yuan per revenue passenger kilometre in 2016, from 0.67 yuan in 2011.

As of June, the three carriers had a combined fleet of owned and leased aircraft of 1,924 planes, from 1,868 at the same time a year earlier. International routes opened last year include Guangzhou-Vientiane and Shanghai-Cebu.

Rising prices of jet fuel, airlines’ single largest cost, is also eating into profits. As of March 16, the price has risen 28 percent year-on-year to $78.2 per barrel, showed the International Air Transport Association’s jet fuel price monitor.