There are no plans to impose a fuel surcharge for domestic flights, despite rising 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 increased jet fuel prices, an official from the CAAC's Department of Planning, Development and Finance said.

 

The country's 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 a fuel surcharge to reduce operation costs. "They could choose instead to cut down on ticket discounts to defray higher operation costs," said the official, who refused to be identified.

 

Jet fuel prices have risen steadily since June last year - from 3,400 yuan (US$410) per ton early last year to 4,620 yuan (US$558) per ton now - and this has placed immense pressure on carriers.

 

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

 

According to CAAC statistics, in the first quarter of this year, the operation costs of domestic airlines totaled 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 forces carriers to offer heavily discounted tickets to lure customers.

 

In China, base ticket prices are set by the government, but airlines have the leeway to adjust the prices within an acceptable framework.

 

According to CAAC regulations, fluctuations can be either 25 percent higher or 45 percent lower than the base price.

 

"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 airlines have to face the challenges that the rise in the jet fuel prices poses to the industry.

 

An added challenge facing China's airlines is the jet fuel monopoly. The Civil Aviation Oil Corporation is the only jet fuel supplier in the country. ?

 

Airlines are expecting authorities to introduce more competition to the jet fuel supply market to drive prices down, Yang said.

 

(China Daily June 3, 2005)