Capitalism in action in the Communist state

Trip Start Jan 30, 2007
Trip End Dec 31, 2011

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Flag of China  ,
Thursday, October 2, 2008

If you've flown in China recently, you might have ended paying as much in fuel surcharges as for the flight ticket itself. Similar to those no-frills airlines which fly all over the globe, in every nation except China.

The fuel surcharges went up recently, again.

But recently the price of fuel worldwide has been going down, due to the economic slowdown, particularly in the US. So what is going on?

Lower fuel costs boost Chinese airlines

Chinese airlines, which are set to benefit from the ongoing "golden week" travel peak, started their fourth-quarter operations on Wednesday with more good news - lower jet fuel prices.

In the forth quarter, jet fuel prices on the Chinese mainland was lowered to 7,750 yuan ($1,130) per ton, nearly 6.9 percent or about 600 yuan less than in the third quarter.

The National Development and Reform Commission and the Civil Aviation Administration of China (CAAC) issued the notice on price adjustments on Wednesday.

As of 2007, China's domestic jet fuel has been usually adjusted quarterly in accordance with the price fluctuations of international jet fuel.

Zhang Wei, an industry insider with the Chinese website, said the cut resulted from a price drop on the international crude oil market.

"Investors are worried that demand for crude oil is becoming weak, which brings down the oil price. To the aviation industry, domestically and globally, lower oil price might mean a turning point," Zhang said.

Fuel cost account for the majority, about 50 percent, of the operating cost among Chinese airlines.

The Chinese aviation industry has been faced with huge pressure from rising jet fuel prices. Since this year, the country's jet fuel prices were reportedly raised three times - by 210 yuan per ton in January, 1,500 yuan in June and 720 yuan in July. In the second quarter, China cut domestic jet fuel price by 80 yuan per ton.

On July 8, when China Aviation Oil, the country's quasi-monopolistic jet fuel supplier, raised the fuel price by 720 yuan per ton, Chinese airlines had to buy fuel at a price 39 percent more than the price at the end of 2007, which stood at 5,970 yuan per ton.

Chinese airlines, which have been suffering from a sluggish aviation market since the beginning of this year, are also expecting increasing traffic volume during the "golden-week" National Day holiday, which runs through to Oct 5.

Despite soaring fuel costs, three major Chinese airlines - Air China, China Eastern Airlines and China Southern Airlines - also achieved profit in the first half thanks to huge exchange-rate gains, according to their half-year reports.

Aggregate exchange-rate earnings were said to have exceeded 6.4 billion yuan in the first half. The gains were about triple the first-half net profits of the three carriers, which totaled 2.16 billion yuan.

Analysts attributed the currency gains to the appreciation of the yuan in the first half. From January to June, the yuan appreciated 6.5 percent against the US dollar, nearly equivalent to last year's total appreciation.
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