Expenses surpassed revenues in a year in which Guangzhou-based China Southern Airlines continued to absorb China Northern Airlines and Xinjiang Airlines, leading to an annual loss of CNY1.85 billion ($229.8 million) compared to a CNY155 million profit in 2004.

"Although the Company recorded a significant increase in traffic revenue during the year, the prices of jet fuel in the global market have been on the rise, and competition on domestic and international routes has intensified," the carrier said in a statement. "Moreover, the businesses that the Group has acquired from China Northern Airlines Co. and Xinjiang Airlines Co. are still undergoing integration and adjustments. Operating synergies of the integration could not be realized in such a short time. All of these factors have exerted strong pressure on the Company's operation during the year."

Revenue increased 59.7% to CNY38.29 billion and expenses surged 71.6% to CNY39.6 billion, turning a CNY909 million operating profit in 2004 into a CNY1.31 billion operating loss last year. The addition of China Northern and Xinjiang contributed to a 66.5% increase in RPKs to 61.92 billion and a 56.4% lift in the number of passengers carried to 44.12 million. The airline did not provide capacity, yield or unit revenue/cost figures. As of Dec. 31, it operated a fleet of 251 aircraft on 559 routes serving 142 destinations.

China Southern's board approved expansion of its secondary base in Beijing with the addition of widebody aircraft starting this summer, facilitating its "strategic transition from a city-pair operation model to a hubbing network operation model" ahead of the 2008 Beijing Olympics. The airline said the transition is key to maintaining its market position during a period of increased competition and high fuel prices.