Chinese airlines

飞雪寒冰

It is not every day a stock resumes trading after a two week suspension, announces the latest in a series of capital raisings, then jumps as much as 11 per cent, almost three times the market gain over that period.

Then again, this is China Southern, Asia's largest airline in an industry finally emerging from the crisis after some stiff jabs in the ribs by regulators. In recent years, China's big airlines seemed set on thwarting Beijing's economic planners. They pursued aggressive debt-financed growth strategies, dabbled recklessly in derivatives and received regular bail-outs. Lately they have been put on warning.

As a result capital positions are, at last, under repair: domestic number three Air China may return from suspension on Thursday with news of a big private placement, while China Eastern, number two, is courting strategic investors. And, for the first time in ages, there's not much else on the charge sheet. Passenger and freight growth in 2010 should exceed fleet expansion by one or two percentage

飞雪寒冰

points; combined profits for the big three could top 2007 levels, on Citi estimates. After some regulatory urging, consolidation is also becoming a reality. Last July China Eastern, the weakest of the three, announced a merger with its regional rival, Shanghai Airlines. Since then, Air China and Hong Kong's Cathay Pacific have consummated a Shanghai-based cargo joint venture, while Air China is eyeing control of Shenzhen Air, number five, giving it a Pearl River delta hub to compete with China Southern of Guangzhou. Since the China Eastern merger, shares in the big three have beaten the benchmark by an average of 50 per cent.

Further out, airlines face threats from high-speed railways linking two-thirds of China's cities within a few years. But for now, they can bask in some rare approval.