China Southern Airlines Co., the country’s largest carrier, posted Tuesday a surprise loss for the second half of 2004 as costs soared, making it the only major mainland airline to fall into the red last year.

“Now we expect the company will be barely profitable this year despite the gains from improved operating scale after its recent mergers,” investment bank CSFB said in a research note, adding the results had come as a shock.

China Southern reported a net loss of 314.18 million yuan (US$38 million) for the six months to Dec. 31 versus a profit of 873.61 million yuan for the year-earlier period as soaring fuel and other costs offset strong passenger growth.

That dragged China Southern’s full-year net to a loss of 48 million yuan against a loss of 358 million yuan in 2003, when severe acute respiratory syndrome dealt a blow to the global travel industry.

The airline had been expected to report a full-year net profit of 584.5 million yuan based on international accounting standards, according to 20 analysts.

Total operating revenue grew more than 37 percent to 23.97 billion yuan in 2004, but fuel prices rose substantially and accounted for nearly a third of operating costs, chairman Liu Shaoyong said in a statement.

Other negative surprises included lower-than-expected traffic yield and higher costs such as maintenance and some one-off preliminary expenses, analysts said.

Earlier this month, Air China Ltd., the country’s flagship carrier, posted a near 15-fold jump in 2004 net profit, while Shanghai-based rival China Eastern Airlines Co. returned to profit in 2004 on stronger passenger numbers, though second-half earnings shrank nearly 89 percent.

Liu said 2005 would be “a year of challenge” as the airline faces tougher competition on the mainland market. CSFB cut its rating for Southern Air to “underperform” from “neutral”, while BOCI moved to “underperform” from “outperform.”

(Shenzhen Daily April 27, 2005)