Guangzhou-based China Southern Airlines Co Ltd yesterday reported a net loss of 825 million yuan (US$103 million) for the first half of this year due to soaring fuel prices and rapid expansion.

The airline's costs surged 17 per cent year-on-year to reach 20 billion yuan (US$2.5 billion) in the first six months, according to the company's interim report.

But compared with the same period last year, the carrier's net loss dropped only slightly by 9 per cent.

"With oil prices hovering at a high level, there is little room for China Southern to manoeuvre," said Li Lei, an aviation analyst with CITIC China Securities.

"The carrier's international businesses are the weakest compared with Air China and China Eastern Airlines. There is no doubt that its profitability will drop as competition in the domestic market gets white hot and oil prices continue to soar," Li said.

Domestic business accounts for more than 70 per cent of China Southern's total sales, while about half of the sales of Air China and China Eastern come from international routes and flights to Hong Kong and Macao, he said.

"The other two carriers enjoy cost advantages as they can buy jet fuel abroad at lower prices and levy higher oil surcharges," Li added.

But some analysts said oil prices are not the only reason for China Southern's loss.

"It's not all about high oil prices," said Andes Cheng, associate director of Hong Kong-based South China Research Ltd. He attributed the carrier's sluggish performance to a high gearing ratio, over-expansion and failure to streamline acquired businesses.

(China Daily August 18, 2006)