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China Southern expects loss due to economic downturn

CHINA Southern Airlines anticipates a loss for 2008 due to the economic downturn and weak demand.

"China Southern has issued cost-efficient measures to save 1.3 billion yuan, but recovering demand will be a difficult task for the carrier," China Merchants Securities Co said.

The Guangzhou-based carrier attributed the loss to the economic downturn in the second half of last year, declining demand and record high fuel prices in the first half, according to a statement filed to the Shanghai Stock Exchange yesterday. It earned 1.85 billion yuan in 2007 or 0.42 yuan a share.

China Merchants Securities Co estimated the airline lost 0.19 yuan a share last year with earnings per share forecast to be 0.01 yuan this year and 0.05 yuan in 2010.

The carrier's new Chairman Si Xianmin yesterday told media that this year will continue to be a difficult year, but they would work hard to raise revenue. He said he expects the global aviation industry to start to recover in the second half of this year.

China Southern flew 59.81 million passengers last year, rising 5.1 percent from a year earlier, and delivered 870,000 tons of cargo, almost the same as 2007's volume.

Passenger volume on the carrier's international routes slid 21.7 percent in December on a yearly basis and cargo volume declined 46.6 percent.

China Southern is the only one of the country's three biggest carriers to avoid hedging losses last year. It earned US$6.28 million from jet fuel hedging contracts.

Shanghai-based China Eastern Airlines said its fair-value losses on hedging deals totaled 6.2 billion yuan as of December and warned it would post a "significant" loss last year.

Air China Ltd, the nation's largest international carrier, also said its fair-value loss on contracts widened to 3.1 billion yuan from 1 billion yuan in the third quarter.

The state-run parent of China Southern has secured a 3-billion-yuan cash injection from the central government and the carrier will sell shares to raise funds to repay its bank loans and replenish working capital.

The government has issued a string of rules to bolster the ailing aviation market, including waiving taxes and fees, encouraging mergers and cash injections.

The Civil Aviation Administration of China announced the suspension of fuel surcharges on domestic flights from yesterday due to a fall in kerosene prices, following a sharp reduction on December 25.


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