Shanghai Air expands loss in 08, faces trading limit

* Shanghai Airlines shares face special trading limits

* Net loss deepens in 2008, may return to profit in 2009

SHANGHAI, March 25 (Reuters) - Shanghai Airlines 600591.SS reported a net loss for the second straight year in 2008 as a slowing economy curbed air travel demand, with its shares facing special trading limits effective on Thursday.

Shanghai Airlines expanded its net loss to 1.25 billion yuan ($183 million) last year from 435.12 million yuan in 2007, the company said in a statement on Wednesday.

It blamed the loss on plunging air travel demand especially in the second half of 2008 as well as a significant rise in operating costs due to higher fuel prices for most of the year.

Shanghai Airlines' shares, traded in Shanghai, will be subject to a daily trading cap of 5 percent in either direction, according to China's securities trading rules and will be delisted if it is unable to make a turnaround in 2009.

After years of robust growth on the back of a soaring domestic economy, China's airlines are facing a severe challenge due to a global recession.

World airlines are set to lose $4.7 billion this year, according to the International Air Transport Association [ID:nLO1706].

Shanghai Airlines may return to a profit in 2009, if an expected pick-up in air traffic materialises next month, its chairman, Zhou Chi said earlier this month.

He added that the company had no plans for lay-offs this year, but would not be using its quota from the authorities for two or three new aircraft this year and next.

It was also in discussions with Boeing Co (BA.N) on whether to accept an order for a 787 Dreamliner aircraft ordered previously, he said.

The carrier took delivery of 8 air planes in 2008, increasing the size of its fleet to 66. ($1=6.829 Yuan) (Reporting by Fang Yan; Editing by Dhara Ranasinghe)