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TheStreet Open House

Will Fear of Flying Ground Chinese Airlines After the Malaysia Airlines Disaster?

Stocks in this article: AIRYYZNHCEA

BEIJING (TheStreet) -- Traveling in China via high-speed rail was in vogue back in July 2011 when two bullet trains collided near the city of Wenzhou, killing 40 people.

The horrific wreck so rocked public confidence in the nation's high-speed railway system that significant numbers of nervous travelers migrated to airlines and slow trains for intercity trips. Negative sentiment hurt sales of bullet train tickets for months after the crash.

Now, China's airlines could face a similar psychological backlash following the March 8 disappearance -- and perhaps a crash into the Indian Ocean -- of a Beijing-bound Malaysia Airlines jetliner. (And as TheStreet's Ted Reed has reported, this hasn't been the only plane to flicker off the radar.)

The first Chinese airline affected by post-MH370 traveler jitters could be the state-owned carrier Air China (AIRYY), whose stock trades in Shanghai and Hong Kong.

Other domestic carriers that could be affected by a fear of flying among Chinese travelers -- and, for that matter, tourists who want a foreign beach in sunny countries such as Malaysia -- include China Southern (ZNH), China Eastern (CEA), and Shanghai-listed Hainan Airlines.

Potential trouble at Air China, and implications for the Chinese airline industry as a whole, were cited Wednesday in a Huatai Securities analysis of the carrier's latest financial report.

"We think that, in the wake of the gradually emerging MH370 incident, an overall rebound for aviation demand will be comparatively more difficult this year," analysts wrote. "The company (Air China) will have to wait for an opportunity to turn around its performance."

Air China posted a 3.3 billion yuan net profit in 2013, the company said Tuesday, a 32% decline from the previous year.

The company reported a 7.3% increase in passengers overall to 77.6 million for the year, thanks to a big jump in international ticket sales, particularly in the Asia-Pacific region. Meanwhile, domestic demand lagged. A Haitong Securities report Wednesday said income from Air China's domestic flights fell 13% last year.

Among Chinese airlines, Air China leads in flights between the mainland and overseas destinations. The Haitong report said the carrier was thus well-positioned last year to benefit from the fact that "more and more (Chinese) tourists are choosing to go out of the country" for holidays.

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