China's flagship carrier Air China said late Tuesday that its net profits dropped 74 percent to 1.06 billion yuan (168 million U.S. dollars) in the first half due to weak market demand and higher operating costs. The airline's revenues rose 5.38 percent to 47.56 billion yuan, with a gain of 0.09 yuan per share, according to a statement the company filed to the Shanghai Stock Exchange. Air China carried more than 34 million passengers in the first six months of the year, up more than three percent from the same period last year. The company said it expects a grim operating environment for the second half of the year, citing fuel costs and exchange rate fluctuations. In the first half, its fuel spending rose 12.8 percent year on year. From January to August, the company recorded foreign exchange losses totaling 341 million yuan, compared with a gain of 1.48 billion yuan for the same period last year, said the statement.