Earnings fell even though revenues reached 1.56 billion dollars, compared to 1.27 billion dollars in 2007, said the state-run carrier in a statement.

"Vietnam Airlines (VNA) has never faced so many continuous challenges and disadvantages," said its general director Pham Ngoc Minh.

The airline made a loss of 83 billion dong (about 5 million dollars) in the first half of the year, when global oil prices peaked, but recovered in the second half with fuel savings and by halting new recruitments, it said.

The state-run carrier said it flew 8.8 million passengers and more than 125,000 tonnes of cargo throughout the year. Seat occupancy reached more than 76 percent, up by more than one percentage point year-on-year.

The airline warned that, amid the global economic downturn, 2009 "will be a year of extreme difficulties with potential instabilities."

Vietnam Airlines now operates 50 aircraft and plans to expand its fleet to 150 by 2020. It flies to 23 international destinations.

The airline has been plagued by a recent string of mishaps and bad news.

On Tuesday, a VNA Ho Chi Minh City-Hanoi Boeing 777 flight turned back for an emergency landing shortly after takeoff after the crew discovered a fire in one engine after about 10 minutes in the air.

In August a Vietnam Airlines passenger set off the inflatable emergency slide of a parked Airbus A321 at Taipei's airport, and the previous month one engine of a VNA Boeing-777 billowed smoke at Narita airport near Tokyo.

No passengers or crew were hurt in any of the incidents.

Vietnam Airlines pilots have been in trouble too.

Last month Japanese police arrested a VNA pilot for allegedly trying to smuggle home goods stolen by pickpockets in an apparent million-dollar crime ring that also led to 85 other arrests.

Last April a Vietnam Airlines pilot was charged in Australia with smuggling millions of dollars in drug profits out of the country.

Agence France Presse - January 10, 2009