Flag carrier Air China said it expected to post a "significant loss" for last year due to shrinking passenger numbers and misjudged fuel hedging contracts.

The announcement marked a dismal cap on what was supposed to be a banner year for Air China after it was named the sole airline sponsor of the Beijing Olympics and joined the Star Alliance group of international carriers.

"The company will incur significant loss for the year ended 31 December 2008," the country's second largest carrier in terms of fleet size said in a statement to the Shanghai Stock Exchange before the market opened Monday.

The statement confirms that last year was unusually bad for the nation's main carriers, as demand weakened amid the global economic slowdown.

The nation's top airline China Southern Airlines and the third biggest carrier China Eastern Airlines have both said they expected to report losses for 2008.

Air China attributed the falling demand to the global financial crisis, but added the devastating earthquake in southwestern China in May and restrictions on air travel during the Olympics had also played a role.

"The aviation market experienced a general shrinking (in) demand in 2008 and traffic revenue was significantly lower than expected," it said.

The company said the fair value loss of fuel hedging contracts, or unrealised paper loss, was 6.8 billion yuan (945 million dollars) as of the end of December as international crude oil prices continued to drop.

But it added the drastic fall in oil prices also helped it reduce fuel costs.