Aug. 26 (Bloomberg) -- Air China Ltd., the nation's largest international carrier, reported a 21 percent drop in first-half profit and China Eastern Airlines Corp. posted a loss after fuel prices doubled and natural disasters disrupted travel.

Air China's net income slipped to 1.24 billion yuan from 1.57 billion yuan a year earlier, it said in a Shanghai stock exchange statement today. China Eastern, the nation's third- biggest carrier, had a loss of 212 million yuan, it said in a separate statement. Neither company provided any further figures under international accounting standards.

Both airlines' passengers number fell after snowstorms in February and an earthquake in May forced the cancellation of hundreds of flights and the first drop in China air travel since the 2003 SARS outbreak. Higher fuel prices and the global economic slowdown will also have an impact ``over the coming several months or even longer,'' Kong Dong, chairman of Air China, said in an e-mailed statement.

``There's much more bad news ahead than good news,'' said Kelvin Lau, an analyst at Daiwa Institute of Research in Hong Kong. ``For the full year, a rebound in traffic demand in the fourth quarter won't be enough to compensate the losses so far.''

Both airlines are due to make full earnings reports to the Hong Kong stock exchange later today.

Shares Plunge

Surging fuel prices and traffic disruptions have caused all five airlines listed in Shanghai to plunge more than 70 percent this year. The country's big three airlines have also all dropped more than 66 percent in Hong Kong trading.

The decline has helped cause Air China to plunge from first to fourth among the world's biggest carriers by market value sine June. Singapore Airlines Ltd., which has tried to buy a stake in China Eastern, is now top of the list, ahead of Southwest Airlines Co. and Deutsche Lufthansa AG.

The price of fuel doubled in the year ended June in Singapore trading and hit a record $181.85 a barrel on July 3. It's since declined 26 percent in line with falling oil prices.

The yuan appreciated 6.6 percent against the dollar in the first half, easing the burden of higher fuel bills, by cutting the value of the airlines' dollar-denominated debts. China Southern Airlines Co., the nation's biggest carrier, posted a first-half profit of 847 million yuan after making a 2.64 billion yuan currency gain.

Fuel Costs

Air China is the most affected by rising fuel costs among Chinese carriers, as 45 percent of its passenger traffic, as measured by revenue-kilometers, is on international flights, including services to Hong Kong and Macau. That compares with 37 percent for China Eastern and 17 percent for China Southern.

Chinese airlines pay market prices for fuel used on overseas flights and subsidized rates for domestic trips. China allowed carriers to raise domestic surcharges as much as 50 percent from last month after raising fuel prices.

Air China's passenger numbers fell 0.8 percent to 16.6 million in the first six months. The carrier, with a fleet of 229 planes, filled 75.3 percent of available seats during the period, a decline of 0.5 percentage points.

The airline gained 4.8 percent to HK$3.93 in Hong Kong trading before the earnings announcement and fell 7.9 percent to 5.63 yuan in Shanghai. The carrier and Cathay Pacific Airways Ltd., Hong Kong largest airline, own abut 18 percent of each other.

Cathay Pacific

Cathay Pacific posted a first-half loss because of the surging fuel costs. It was the carrier's first since the Severe Acute Respiratory Syndrome outbreak caused travel demand in Asia to plunge five years ago.

China Eastern rose 7.6 percent to HK$1.70 in Hong Kong trading and fell 8.8 percent to 4.90 yuan in Shanghai, before the earnings announcement.

The Shanghai-based carrier, which operates 225 planes, moved 1 percent fewer, or 18.1 million passengers in the period. The passenger load factor slipped 0.3 percentage points to 71.1 percent. Cargo volume rose 6.4 percent to 449,970 tons.

The airline is renewing attempts to find a strategic investor after the collapse of the sale of a 24 percent stake to Singapore Airlines and Temasek Holdings Pte. China Eastern's minority shareholders vetoed the investment after Air China's parent pledged to make a higher offer.

``As the worst performer among China's airlines, the only thing China Eastern can expect is more speculation about mergers,'' said Lau. ``There's no other good news ahead.''

Air China's parent owns 12 percent of China Eastern's Hong Kong-listed stock. Both companies are state-controlled.

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

Last Updated: August 26, 2008 10:11 EDT