AIR China Ltd., the country’s flagship carrier, yesterday said its first-half net profit dropped by 12.5 percent, hurt by foreign exchange losses that outweighed lower fuel costs and cost control measures.

    Net profit for the six months to June 30 was 3.46 billion yuan (US$518 million), down from 3.95 billion yuan in the same period a year earlier.

    China’s airlines have been expanding rapidly as more Chinese travel overseas and have ordered new planes to expand their long-haul fleets. But some analysts have expressed concern that the rate of expansion may outpace passenger demand, leading to overcapacity and declining profitability.

    Large-scale borrowing in U.S. dollars to buy planes has exposed the airlines to foreign exchange losses after the yuan fell 2.3 percent against the dollar in the first six months to become Asia’s worst currency performer.

    Air China said it booked currency losses of 1.7 billion yuan over the period, sharply higher than a loss of 123 million yuan over the same period a year ago.

    This overshadowed a 19 percent reduction in fuel costs and a 7.3 percent increase in passenger traffic. Chinese carriers are among a handful of airlines that tend not to hedge for fuel and are benefiting from current low oil prices.

    The company’s yield, the average fare paid by a passenger per kilometer, fell 4.34 percent to 0.53 yuan as it increased capacity. (SD-Agencies)