China Southern Airlines, China's biggest carrier by fleet, posted a net loss of 1.025 billion yuan (US$126.4 million) for the first half of 2005 Friday as it was hit hard by soaring fuel costs and domestic price wars.

Its first-half loss compared with a restated net profit of 469 million yuan in the same period last year. Southern Air was the only major Chinese airline that was not profitable in 2004, when it reported a loss of 48 million yuan.

It was the airline's first results after consolidating China Northern Airlines Co. and Xinjiang Airlines Co.

The market had expected Southern Air to report a large interim loss after the carrier issued a profit warning in mid-July, citing rising fuel prices.

JP Morgan had forecast a first-half net loss of 253 million yuan.

However, analysts expect the carrier to post a net profit of 509.4 million yuan for 2005 as the government allowed airlines to introduce fuel surcharges on domestic flights from August and the yuan appreciated.

Without the fuel surcharges in the first half, record oil prices took a heavy toll on Southern Air, which gets about 80 percent of its passenger revenue from domestic flights.

Southern Air is the first of the big three Chinese carriers, including China Eastern Airlines and Air China Ltd., to report first-half results.

Shanghai-based China Eastern Airline, which is due to report its interim earnings Monday, said last month that it expected a significant loss for the first half because of high oil prices.

Air China, which plans to report results Sept. 5, benefits from a fuel surcharge on international flights and is the leader among mainland majors in terms of capacity utilization and a big beneficiary of robust outbound tourism, analysts said.

(Shenzhen Daily August 30, 2005)