Companies

Airlines may raise surcharge to offset higher fuel costs

By Yang Ning and Wang Zhuoqiong (China Daily)
Updated: 2011-02-22 14:27

Trial flight of a private helicopter in Haikou, Hainan province. [Photo / China Daily]

BEIJING - The rise in China's jet fuel prices is expected to push up the costs of domestic airline companies by billions of yuan every year, while analysts hinted airliners could raise passenger fuel surcharges to offset the increase in costs.

The total annual costs of China's three major airline giants, China Southern Airlines, Air China and China Eastern Airlines, will increase about 2.5 billion yuan ($380.6 million) owing to the jet fuel price hike, China Business News reported on Monday.

China raised jet fuel, gasoline and diesel prices by 350 yuan per metric ton beginning on Sunday, according to a statement released by National Development and Reform Commission, the country's top economic planning body.

The benchmark ex-factory price of No 3 jet fuel reached 6,340 yuan a ton from 5,990 yuan, up 5.84 percent.

"At present, the fuel bill accounts for about 30 percent to 40 percent of the total cost for Chinese airline companies, therefore the fuel price hike will put great pressure on them," said Shen Xiaofeng, a senior industry analyst at Changjiang Securities.

Related readings:  The price hike of gasoline, diesel lower than expected  Fuel prices rise by 4.5%

Taking China Southern Airlines as an example, the company consumes approximately 3.3 million tons of jet fuel every year, of which around 80 percent are for domestic routes. That means the cost of fuel will increase 924 million yuan annually because of a 5.84 percent rise in the ex-factory jet fuel price.

Similarly, the costs for Air China and China Eastern Airlines will also rise 809 million yuan and 784 million yuan, respectively.

Shen said airline companies could raise passenger fuel surcharges to offset the additional cost burden.

"Based on the official calculation formula for fuel surcharges, Chinese airline companies could raise it to 90 yuan per passenger on domestic flights of, or beyond, 800 kilometers from the current 70-yuan," he said.

And for flights of less than 800 kilometers, the airliners could charge 50 yuan as surcharge, up from 40 yuan, he added.

Global airlines have been experimenting with aviation biofuel as a way to lower fuel bills and reduce carbon emissions.