Airline's fuel surcharge plea rejected
By Cao Desheng (China Daily)
Updated: 2005-06-03 05:47

No plan has been made to collect a fuel surcharge for domestic flights, despite the continual rise of jet fuel prices, the General Administration of Civil Aviation of China (CAAC) said yesterday.

Airlines are not allowed to raise ticket prices in line with the surge in jet fuel prices, an official from the CAAC's Department of Planning, Development and Finance said.

The three major airlines - Air China, China Eastern Airlines and China Southern Airlines - jointly appealed to the industry watchdog last month to allow them to collect the fuel surcharge to reduce operation costs. "They can choose to cut down on the discount of air tickets to avoid the growth of their operation costs," said the official, who refused to be identified.

Jet fuel prices have been rising since June of last year - from 3,400 yuan (US$410) per ton early last year to 4,620 yuan (US$558) per ton now - which have placed pressure upon air carriers.

"A 100-yuan (US$12) increase in jet fuel prices will lead to a loss of 250 million yuan (US$30 million) in our net profit," said Yang Defeng, spokesman of the Guangzhou-based China Southern Airlines.

According to CAAC statistics, in the first quarter, the operation costs of domestic airlines totalled about 27.8 billion yuan (US$3.3 billion), an increase of 4.1 billion yuan (US$500 million) over the same period last year.

On the other hand, cut-throat competition on domestic routes prompts the carriers to offer discounted tickets to lure customers.

In China, the basic prices of air tickets are set by the government, but airlines may adjust the prices within a framework.

According to CAAC regulations, the air ticket prices are allowed to be 25 per cent higher than the basic prices or 45 per cent lower than the basic prices.

"We can only decrease the administrative and personnel expenses to reduce operation costs," Yang said.

Early this year, CAAC Director Yang Yuanyuan said at an annual work conference that the airline companies have to face the challenges that the rise of the jet fuel prices poses to the industry.

The monopoly of the jet fuel supplies in China also adds more pressure to the airline companies as jet fuel are only provided by the Civil Aviation Oil Corporation of China in the country.

Airlines are expecting the nation to introduce competitions on the jet fuel supply market to bring the fuel prices lower,Yang said.

(China Daily 06/03/2005 page2)

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