China Southern Airlines, the mainland's largest carrier by fleet, has earmarked 21 billion yuan (US$2.62 billion) to buy nearly 70 new aircraft by the end of 2007.

"We will continue to increase the size of our fleet from 261 to 299 by the end of this year and to 330 in 2007," Chairman Liu Shaoyong said yesterday.

"Given the increase in air passenger demand on the mainland, we intend to keep on expanding our fleets," said Liu.

He also said the carrier will set aside 9 billion (US$1.12 billion) in 2006 and 12 billion yuan (US$1.5 billion) in 2007 to finance the purchases.

The move comes as the mainland's passenger traffic is expected to rise sharply in the next decade.

Statistics from the General Administration of Civil Aviation showed that passenger throughput on the mainland increased 17.5 percent in 2005 to reach 284 million.

"The figure will increase at a brisk pace in the following years, given the mainland's blistering economic growth," Liu said.

Other carriers have also quickened their pace to buy planes.

The mainland flagship carrier Air China said earlier this week that it will spend 9.1 billion yuan (US$1.14 billion) on 32 new aircraft in 2006.

Although China Southern Airlines is preparing to expand, it announced yesterday that it had failed to break even last year, for the third year in a row.

The company posted a 1.85 billion yuan (US$230 million) loss in net profit in 2005, compared to its 48 million yuan (US$6 million) loss in 2004.

Liu attributed the loss mainly to jet fuel price hikes and furious competition.

"Last year, the fuel cost accounted for 30 per cent of our total cost, equivalent to 12 billion yuan (US$1.5 billion)," he said.

But Liu said he would lay down some strategies to improve the situation. "We will streamline our structure by selling low efficiency assets, for example, the MD82 aircraft."

"We will also try to increase our presence in the northern region since there are more economy class passengers there than in South China," said Liu, adding the company is currently establishing an operation hub in Beijing.

(China Daily April 21, 2006)