UPDATE 1-SAS Dec traffic down 12.5 pct, capacity cuts eyed

* Passenger traffic drops 12.5 percent in December yr/yr

* Airline expects to cut capacity further this year

* Dec load factor down 1.7 percentage points, Nov yield up

(Adds more detail, analysts comments)

STOCKHOLM, Jan 12 (Reuters) - Scandinavian airline SAS (SAS.ST) posted a 12.5 percent year-on-year fall in December passenger traffic on Monday and said it expected to cut capacity further this year.

The airline, half owned by Sweden, Norway and Denmark, said its yield in November was up 3.3 percent and it forecast the yield for December would improve slightly and be positive compared with a year earlier.

November was the latest month for which figures on yield, a measure of unit revenue, were available.

SAS said its passenger load factor, a measure of how successful it was in filling its seats, fell 1.7 percentage points year-on-year to 64.8 percent in December.

State flag-carriers such as SAS have been struggling for years with overcapacity and competition from more nimble, no-frills airlines. While oil prices have come down from their lofty heights last year, the global financial crisis still represents a massive challenge.

SAS said its Profit 2008 programme to boost revenue and cut costs was on track.

"Capacity reductions of 10 percent as announced earlier are gradually taking effect," it said. "More capacity cuts are likely to be implemented in 2009."

Shares in loss-making SAS rose 0.4 percent at 1029 GMT, compared with a 1 percent fall in the wider Stockholm index .

"The figures are in line with November," said an analyst who declined to be identified. "They still have falling load factor, and the development in the yield is still slightly positive. But overall the sum is neutral for the company."

The analyst said further capacity cuts this year would be "quite natural".

(Reporting by Anna Ringstrom, additional reporting by Veronica Ek; Editing by Mike Nesbit)