China will allow its domestic airlines to increase the fuel surcharge on domestic flights by as much as 25 percent, effective from today.

The initiative is to offset the pressure of oil price rises on the aviation industry.

The passenger fuel surcharge will be raised from 50 yuan (US$6.70) to 60 yuan per passenger for flights of under 800 kilometers. For long-haul flights, the fee will rise from 80 yuan to 100 yuan.

The new fee structure was released in joint circular issued by the National Development and Reform Commission, the country's top economic planner, and the General Administration of Civil Aviation.

The government decided to raise prices of gasoline, diesel oil and jet kerosene by 500 yuan per ton - almost 10 percent - beginning on November 1. The adjustment was made to shorten the gap between sky-high international crude prices and state-set domestic oil prices.

The increase further boosted fuel expenses for airlines, which already accounted for 44 percent of the total cost in September, according to CAAC officials.

Ma Xiaoli, an analyst with Citic Securities, estimated that, based on an analysis of 2006, when the oil price climbs 100 yuan per ton, the profit will be reduced by 220 million yuan for China Eastern Airlines, 250 million yuan for China Southern Airlines, and 180 million yuan for Air China.

The higher prices would cut Air China Ltd's 2008 profit by 20 percent and push China Southern and China Eastern Airlines Corp into losses without increased surcharges, according to HSBC Holdings Plc analyst Eric Lin.

The higher fuel prices narrowed the discount of domestic fuel to the spot market to 17 percent from 25 percent, Lin said in a November 1 report. He held an "underweight" rating on all three of China's biggest airlines.

Fuel surcharge is an aviation tariff which requires the approval of aeronautical authorities before it can be levied.

Other Asian carriers have also raised surcharges because the price of jet fuel has surged 56 percent in the past 12 months. Jet fuel gained 0.9 percent to a record US$110.95 a barrel in Singapore on Saturday.

(Shanghai Daily November 5, 2007)