After huge losses in 2005, Chinese airlines flew out of the turbulent weather and back into profitable skies in 2006 despite facing hefty increases in the cost of fuel.

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National-flag carrier Air China said in its annual report that it recorded 3.2 billion yuan of net profit in 2006, up 87.7 percent from 2005.

Air China has been the most profitable carrier in the country for three years in a row, thanks to its extensive international network and its location in Beijing where the volume of traffic continues to rise as the 2008 Olympics draw near.

Guangzhou-based China Southern Airlines said earlier it had earned a profit in 2006, the first for the carrier in eight years, but did not reveal the actual figure.

Liu Shaoyong, general manager of China Southern Airlines, attributed the profit to cost cutting, improved budgeting, better handling of non-performing assets and active debt recovery.

The carrier reported losses of 1.79 billion yuan in 2005.

Shanghai-based China Eastern Airlines had a difficult time in the fast-growing but increasingly competitive market.

After suffering losses of 970 million yuan in the nine months to September, the carrier reported 492 million yuan of profits in the fourth quarter of 2006 to stench the bleeding.

Investment bank Morgan Stanley previously forecast a 2 billion yuan loss for the carrier in 2006, but the carrier's performance was better than expected.

Hainan Airlines, which reported 216 million yuan of losses in 2005, said in an earlier statement that a robust performance last year would allow it to report profit for 2006.

CITIC analyst Li Lei estimated Hainan Airlines' net profit for 2006 at between 213 million and 355 million yuan.

Analysts said that all the major Chinese airlines benefited from the appreciation of the national currency in 2006 as their debts in foreign currencies lost value against the rising yuan.

Feng Zhigang, an analyst with Guotai Junan Securities, told the 21st Century Business Herald that airlines normally ran operational debts, and the debts of Chinese airlines are often in foreign currencies because they purchase jets, fuel oil and aeroplane maintenance services from overseas.

China's fuel oil price was adjusted three times in 2006 to average 5,737 yuan per ton over the year, up a hefty 19 percent from 4,815 yuan in 2005.

Fuel oil is a key cost for airlines. The pressure from high fuel prices is still impacting Chinese airlines' bottom line in 2007 despite three small fuel oil price cuts since January.

Air China said it would continue to purchase fuel oil futures contracts to offset risks from price hikes this year.

Li expected the country's airlines to stay profitable in 2007 as the yuan continues to appreciate and international oil prices drop.

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