Air China, like other Chinese airlines, is also grappling with fuel costs that surged 28 percent in the first half and falling passenger yields, especially on worldwide routes amid aggressive fleet expansion plans.
The decline, however, was pared by a net exchange gain of 561 million yuan due to an appreciation of the yuan against the U.S. dollar in the first six months, according to a filing to the Hong Kong stock exchange on Tuesday.
The overall passenger yield per revenue passenger kilometres (RPK), a key measure of profitability, also weakened to 0.48 yuan, dropping two per cent from the first half of 2016.
The cost of jet fuel rose 28 per cent over the first half, according to analysts from brokerage UOB Kay Hian.
China's flagship carrier said net profit attributable to shareholders over the six months to June was 3.3 billion yuan ($500.53 million), on an 8.7 percent increase in revenue to 58.2 billion yuan.
Passenger yields fell two per cent, dragged down by a 7.5 per cent slump on worldwide routes, even as revenue per kilometre grew 12.5 per cent.
The company said it expected the number of passengers travelling outbound from China to exceed 140 million in the second half of 2017, an increase of 14.8 per cent.
Statistics show that up to 25 per cent of the passengers on the China Southern service are from outside China.
While he expected the Chinese currency to strengthen against the USA dollar and oil prices to stabilise, the airline would face intensified market competition overseas and at home that is brought about by China's accelerated high-speed rail development, as well as pressure from increased domestic and global airline security measures.