The government sets a base price for all domestic routes, allowing airlines to raise or lower fares within a certain range. In the past, airlines couldn't charge more than 11 percent above the base ticket price, but as of yesterday they can raise prices 17 percent above the recommended fare.

Two local airline companies, China Eastern Airline Co. Ltd. and Shanghai Airlines Co. Ltd., have already raised their ticket prices to the new maximum level.

"Because oil prices keep rising amid the current international situation, the ticket price hike is aimed at giving air carriers some space to raise prices," said an official surnamed Zhang of the Civil Aviation Administration of China.

However, the passengers may feel the change is small.

"Passengers will find a small rise in the price of tickets they buy," said Gao Pei, marketing manager with China Eastern Airlines Co. Ltd.

A one-way trip from Shanghai to Beijing, for instance, has a base price of 900 yuan. Under the old rules, airlines could raise that price to the maximum of 1,000 yuan. The new rules allow them to boost fares to 1,050 yuan.

Though the price hike may not have much influence on passengers, it will help air carriers to absorb increased costs caused by soaring oil prices worldwide, said industry analysts.

"Thanks to the new upper limit, I believe air carriers could pay off the rising flying costs resulting from the oil price change these days," said Zhang Qi, an analyst with Haitong Securities Co. Ltd.

The State Development and Planning Committee and the CAAC have decided to raise factory prices of aviation oil by up to 17 percent, said Jia Changbin, general manager of China Aviation Oil Holding Co., last week.

Oil prices account for 25 to 30 percent of total flying costs. The International Air Transport Association estimates that rise of 1 U.S. cent in price will increase the cost of all the air carriers worldwide by US$600 million.

"But every air carrier has their own way of reducing the cost and their own marketing strategy under the price hike. So it's hard to say whether the oil and ticket price hikes will finally pose positive or negative influence on our performance," said Luo Zhuping, of China Eastern.

Some analysts say they expect the price of oil to drop soon, a belief based on the opinion that America could quickly win any war with Iraq and avoid major damage to oil production in the Middle East.

(Shanghai Daily February 11, 2003)