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On any flight with bad turbulence there is a moment where it stops and you hope, but cannot be sure, that the stomach-lurching is over. Monday's bounce in China's airlines felt like that after last week's one-10th drop, which was linked to the outbreak of bird flu. But as on flights, there is no way of knowing whether the bumps are over – and disease is not the only threat the sector faces.
The outbreak, although very limited, is reason for some concern. At the peak of the 2003 SARS outbreak, airline and railway traffic in China more than halved year-on-year, according to Citigroup. To date, authorities have reported 21 cases and six deaths. Jitters have been contained, helped by the fact the disease has not been passed between humans, while officials have been far more communicative compared with last time and have taken early action.
Since December, when hopes grew that the Chinese economy had bottomed, the big carriers – Air China, China Eastern and China Southern – had been comfortably outperforming the market with gains of a sixth or more. Earnings at the three last year were down two-fifths on 2011, providing a nice low base from which to recover.
Yet early data for this year, prior to the bird flu outbreak, do not show this happening. Growth in revenue per passenger kilometre at Air China was down a third in January and February at 6.5 per cent, from 2012. This might not just be anemic economics either. Visitor distaste at Beijing's smog could be involved and China's regional squabbles will not help – flights to the Philippines and Japan dropped off last year.
Even after their falls last week, China's big three are trading above or close to their forward price-earnings three-year average, even as Bloomberg's regional industry index is about three points below. Airlines are never turbulence-free bets, but some offer smoother rides than China's.