Aug. 28 (Bloomberg) -- Air China Ltd., the world's biggest airline by market value, said first-half profit jumped more than threefold as the country's surging economy spurred demand for business travel.

Net income rose to 1.57 billion yuan ($208 million), or 0.13 yuan a share, from 458 million yuan, or 0.05 yuan, a year earlier, the carrier said today in a Hong Kong stock exchange statement, citing international accounting standards. Sales increased 17 percent to 23.4 billion yuan.

The airline is taking advantage of its base in Beijing to win corporate fliers willing to pay higher fares in the world's second-biggest air-travel market. China's economy expanded 11.9 percent last quarter, the fastest pace in more than 12 years.

``Air China is among the few carriers that isn't just relying on yuan appreciation to make a profit,'' Jack Xu, a SinoPac Securities Asia Ltd. analyst in Shanghai, said before the earnings announcement. ``Business travelers to the capital city are less sensitive to ticket prices.''

Air China benefited from a 2.5 percent first-half gain in the yuan, reducing the value of the airline's dollar-dominated debt. It had a first-half currency-exchange gain of 867.5 million yuan, more than quadruple the year-earlier figure.

New Service, Acquisition

China's aviation market, second only to the U.S. in size, is drawing new flights from U.S. airlines under a May 23 aviation accord and prompting other carriers to pursue acquisitions. Singapore Airlines Ltd. is buying an unspecified stake in China Eastern Airlines Corp., China Eastern Board Secretary Luo Zhuping said today.

The alliance will help Singapore Airlines challenge Air China and Cathay Pacific Airways Ltd. China Eastern, the nation's only listed carrier to post a loss last year, may reduce debt and gain management experience.

Air China increased the number of passengers carried by 15 percent to 16.7 million in the first half. It filled 75.8 percent of its seats with paying passengers, compared with 71.9 percent at China Southern Airlines Co., the nation's largest carrier, and 71.4 percent for China Eastern.

Traffic, or kilometers flown by paying passengers, increased 15 percent to 31.8 billion revenue-passenger kilometers (19.8 billion revenue passenger miles). AMR Corp.'s American Airlines, the world's biggest airline by traffic, flew about 68.2 billion revenue passenger miles through June.

Air China generated about half its first-half revenue in mainland China, where sales climbed 16 percent to 12.5 billion yuan. Sales in Europe and North America both grew about a third.

Beijing Market

Air China has a 44 percent share of the Beijing air travel market, Senior Vice President Zhang Lan said on July 20. It aims to raise this to 50 percent after moving into a new terminal next year, she added. The Beijing Capital International Airport facility, due to open in March, will be dedicated to Air China and its domestic and overseas partners.

Lower fuel expense also helped lift Air China's first-half profit as China's state-controlled monopoly jet-fuel supplier cut kerosene prices three times in line with the global market. Fuel, which accounts for about 40 percent of Chinese carriers' costs, averaged $77.12 a barrel in Singapore, 4.3 percent less than a year earlier, according to data compiled by Bloomberg.

The airline's Hong Kong shares, which have more than doubled this year, rose 1.5 percent to HK$8.68 today before the earnings announcement. Its Shanghai stock, which has more than tripled this year, rose 8 percent to 16.33 yuan.

Market Value

The company has a market value of $21.9 billion, according to data complied by Bloomberg. That's 44 percent more than Singapore Airlines and 68 percent more than Deutsche Lufthansa AG, the second- and third-largest carriers by market value. Southwest Airlines Co. is the biggest U.S. airline by market value, at $11.4 billion.

Cathay Pacific Airways Ltd., Hong Kong's largest carrier, owns 17.5 percent of Air China. The mainland airline controls a similar-sized stake in Cathay.

Air China added a net total of five planes to its fleet in the first half, raising the tally to 212. The carrier is due to receive 24 new passenger planes this year.

The airline has a 19 percent share of China's total passenger market, according to calculations based on figures released by the aviation regulator. It is due to join the Star Alliance, the world's largest airline grouping, by year-end, allowing it to sell tickets on partners' routes.

China Southern made a first-half profit of 168 million yuan under international accounting standards compared with a year earlier loss, it said on Aug. 20. China Eastern, the third- largest carrier, has also said it probably returned to profit in the period.

Under domestic accounting standards, Air China's first-half profit rose more than fourfold to 1.22 billion yuan, the airline said in a Shanghai stock exchange statement.

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

Last Updated: August 28, 2007 14:04 EDT