Chinese airlines suffered an aggregate loss of 2.57 billion yuan (US$321 million) in the first half of this year, more than quadrupling that in the same period last year, said the nation's aviation industry regulator.

The General Administration of Civil Aviation of China (CAAC) attributed the loss to the record-high fuel prices that triggered a 21 per cent year-on-year surge in Chinese carriers' costs, offsetting brisk market demand.

The airlines realized sales of 71.7 billion yuan (US$9 billion) in the first six months of the year, rising 18 per cent year-on-year, the CAAC said on its website.

"Chinese airlines enjoyed a short 'spring' in their business after the SARS outbreak, but the oil prices continued to surge shortly after that. The average fuel price was US$57 per barrel last year, but it had already shot up to US$70 by July this year," said Li Lei, an aviation analyst with CITIC Securities.

"Although China is one of the world's fastest growing aviation markets, Chinese airlines are unable to cushion the negative impact of soaring fuel costs," Li said.

Aviation oil accounts for more than 30 per cent of the total costs of Chinese airlines.

Chinese carriers will soon issue their interim reports.

Domestically listed China Southern Airlines and China Eastern Airlines both forecasted losses for the first half of this year when they released their financial reports for the year's first quarter.

China Southern, the nation's largest carrier by the number of aircraft, reported a 665 million yuan (US$83 million) loss in the year's first quarter, more than doubling the loss in the same period of last year.

Shanghai-based China Eastern plunged into the red with a net loss of 955 million yuan (US$119 million) in the first three months of the year. The company reported 50 million yuan (US$6.2 million) in profit in the same period of last year.

"Among the three largest airline groups, Air China may be the only one that is still profitable in the first half of this year," Li said.

Air China enjoys the most extensive international flight network, which helps the flagship carrier enjoy a cost advantage over its peers, Li said.

"About half of Air China's flights are international so it can buy jet fuel abroad at lower prices," Li added.

Domestic flights are the major source of revenue for other Chinese carriers, who must buy fuel for the flights from the monopoly State-owned oil supplier China Aviation Oil Holding Co.

"But Air China's profit is expected to drop compared with that in the previous year," Li said.

Chinese airlines might see "a better picture" in the second half of the year because usually the third quarter is the peak season for air traffic, Li said.

"But if the oil prices continue to soar, I won't be surprised to see Chinese airlines report an aggregate loss for 2006," he said.

Chinese carriers last year reported an aggregate profit of 1.65 billion yuan (US$206 million), plummeting nearly 70 per cent year-on-year.

(China Daily July 27, 2006)