China Southern Airlines - the mainland's largest domestic carrier - is applying for a licence to trade oil futures contracts on the international market in a bid to reduce the impact of fluctuating oil prices on its bottom line. After a press conference on its interim results yesterday, company secretary Su Liang confirmed the H share was in the process of obtaining the licence but offered no further details. However, he said because of the present high price of oil it would not be an opportune time to enter into any futures contracts even if it was granted a licence. Oil price fluctuation has long been an important factor affecting the company's bottom line. A 17.9 per cent year-on-year rise in the average price of jet fuel it consumed is the largest contributor to its 42.1 per cent year-on-year fall in net profit to 201.49 million yuan (about HK$188.85 million) in the first half. Vice-chairman Wang Changshun forecast the domestic jet fuel price to fall 6 to 7 per cent in the second half to about 3,200 yuan per tonne. Mainland airlines are forced to buy fuel from a state monopoly supplier for their domestic needs and domestic fuel costs about 40 per cent more than in the international market. Credit Lyonnais Securities Asia analyst Jim Lam said he believed it would take one to two years for Beijing to issue China's first oil futures trading licence, most likely from the Ministry of Finance. No state-owned enterprise had been allowed to engage in international oil futures trading, he said. While there had been concerns that such trading, if abused, would result in foreign exchange outflow, Mr Lam said this was not likely to be a major barrier for the licence's issuance. 'It appears the government is taking a more open approach on this issue and I suspect, if approved, such trading may have to be done via the ministry or a specified bank so it can be done in a controlled manner,' he said. Analysts said China Southern's first-half net profit - backed by a 19.4 per cent year-on-year rise in passenger traffic - was in line with their expectations. Passenger traffic revenues accounted for 89.3 per cent of total turnover in the period. Profitability - measured in terms of yield per unit of traffic flown - of its domestic passenger traffic remained stable and was better than market expectations. It relieved market concerns of the impact of keen domestic price discounting and worries brought by the revelation that the 10 airlines managed by the Civil Aviation Authority of China (CAAC) - including China Southern - reported a combined first-half loss of two billion yuan. Profits from cargo and international passenger operations fell 13.6 per cent and 11.1 per cent respectively.