China's leading airlines are working together to set ticket prices on important routes in an effort to boost profits, according to Chen Feng, chairman of Hainan Airlines, the country's fourth-largest carrier.

Chen said effective cooperation on ticket tariffs had begun last year after long discussions and all four of China's main carriers appeared keen to work together.

"There's already quite a lot (of cooperation on prices)," he said. "For example, there is an alliance on some routes from Shanghai and Beijing and many other places. Everybody refrains from going below a set price."

While such cooperation will not please many passengers, it raises hopes for a widening of the margins of China's listed leading airlines, which compete fiercely despite shared State-sector roots.

China's government has been gradually easing control on airline ticket pricing, fuelling price-cutting by leading carriers Air China, China Southern, China Eastern and Hainan Airlines. The three bigger carriers said they were unaware of any price cooperation.

While the government has been keen to develop competition in strategic markets such as aviation and telecommunications, officials have become increasingly concerned about the impact on State-sector profits of unrestricted price competition

Chen said the government, which has pushed consolidation in the industry in recent years, was encouraging cooperation on pricing between the airlines.

"We can compete to a certain degree, but come together in alliance when we find that everybody is bleeding," he said. "This matter is handled on two levels: firstly each company's leaders hold consultations, then their market staff negotiate specific routes and prices. A lot of this kind of work can be effective."

Chen said the price "alliance" played a role in the revival of Chinese airlines' profits last year after 2003, when they were hit by a decline in travel caused by the outbreak of SARS.

Officials said China's civil aviation industry made total profits of 8.7 billion yuan (US$1.1 billion) last year, equivalent to the accumulated profits of the previous ten years.

Some analysts remain skeptical about the practicality of price collaboration as the main airline groups fight for market share. They said price agreements could seem effective at times of high demand, but mean little in quiet months.

However, Chen was optimistic cooperation between the carriers would become increasingly close. "Of course, there will be some friction in this unity," he said. "On one side there is coordination; on another, combat; and on another, alliance. This is natural."

(Shenzhen Daily February 3, 2005)