The chairman of China Southern Airlines has voiced that the outlook for the carrier is bleak, following a difficult first half of 2008.

"[Airlines are] generally saddled with three major burdens, including insufficient market demand, fierce competition and high oil prices…As such, the group expects to undergo a long period of hardship." said Liu Shaoyong, Chairman.

This year China Southern's shares have fallen 81% lower including a 9.9% drop yesterday making it the worst performing company in the benchmark Shanghai CSI 300 Index.

The carrier's operating margin fell from +0.3% in 1H07 to -4.3% in 1H08, according to the Centre for Asia Pacific Aviation.

Luckily, the yuan against the US dollar appreciated in the first half of 2008 by 6.6% - delivering the carrier a USD384 million foreign currency gain which was in excess of a double gain compared to the same period in 2007.

Total operating revenue rose 9.1% while yields increased slightly, with predictions that yields will gain more in the second half due to a 50% increase in domestic levies.

Load factors have also improved 1.2 ppts to 73.1%, however fuel prices are rising and the carrier is facing sharp domestic fuel costs enforced by the government.

China Southern is now reliant on the strength of the yuan which has recently depreciated, and if it falls further the carrier will definitely be in the red zone for profit. Since May passenger numbers have declined and the carrier is hoping it will pick up when the Olympics finish and security measures ease.

China Southern announced it will continue to redeploy capacity from weak markets and try to increase revenue through its premium cabins.