China Southern Airlines, the mainland's largest carrier in terms of fleet size, reported its first net profit in four years in 2006 following three consecutive years of losses.

Thanks to increased passenger traffic and a stronger yuan, the Guangzhou-based airline posted net profit last year of 188 million yuan (HK$190 million), rebounding from a loss of 1.85 billion yuan the previous year.

The net profit was slightly below Morgan Stanley's forecast of 206 million yuan.

Operating revenues climbed 20.7 percent year on year to 46.22 billion yuan. No final dividend was declared, unchanged from 2005.

The airline's bottom line in 2006 was boosted by a currency exchange gain of 1.49 billion yuan, up 22 percent from 1.22 billion yuan a year ago.

"The carrier will continue to benefit from lower oil prices, stronger currency and strong traffic during 2010's Guangzhou Asia Games," China Southern chairman Liu Shaoyong said in a statement to the Hong Kong Stock Exchange on April 17.

However, he remains concerned that over-capacity could lead to fierce competition in the aviation industry.

In 2006, driven by rising passenger demand, China Southern improved its operational performance as passenger load factor improved to 71.1 percent from 70.1 percent, and yield per revenue passenger kilometer rose to 0.6 yuan from 0.55 yuan.

In comparison, last year's passenger load factor for Air China, the mainland's largest international carrier, was 75.9 percent, while its yield per RPK was 0.59 yuan.

Domestic routes contributed 80 percent to China Southern's 2006 sales, filling 72.9 percent of its seats, compared to 66.9 percent on international routes.

But yield per RPK on international flights was 0.62 yuan, higher than 0.59 yuan domestically. The carrier, which increased its fleet size to 309 aircraft as at December 31, 2006, from 261 planes the year before, said earlier it plans to expand its international market by joining the SkyTeam Alliance.