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China may reduce jet fuel surcharges by year-end

By Tu Lei (chinadaily.com.cn)
Updated: 2008-11-13 15:57

China is considering dropping jet fuel surcharges by the end of this year, Liu Shaocheng, director of the Civil Aviation Administration of China (CAAC)'s research department, said Wednesday, according to today's National Business Daily.

Liu made the remark at the third China Aviation Leasing Summit, but he did not elaborate on the timing or degree of adjustment in jet fuel prices.

The price of aviation fuel in China was lowered 6.9 percent to 7,750 yuan ($1,138) per metric ton in the fourth quarter compared with the previous quarter.

"The reduction of fuel prices is good for aviation companies," said an analyst who asked not to be named, from Haitong Securities, adding the reduction will alleviate aviation companies' operation fees, and the dropping surcharges will attract more tourists to choose flying by air.

Sources close to the matter predict the surcharges may drop to the November 2007 rate, when the surcharges on domestic routes stood at 60 yuan per passenger for less than 800 kilometers, and 100 yuan for routes longer than 800 kilometers. The crude oil price was about $80 a barrel at that time.

Figures show the price for crude oil produced by the Organization of the Petroleum Exporting Countries dropped to $52.24 Tuesday, the lowest level since January 2007.

Since last year, China's domestic jet fuel price has been adjusted quarterly in response to the price fluctuations of international jet fuel.

The latest one is the surcharge on domestic routes that was raised by 20 yuan per passenger for short-haul flights and by 50 yuan for long-haul flights from July 1 of this year. Jet fuel surcharges on flights of less than 800 kilometers will be 80 yuan per passenger, and the surcharge for routes longer than 800 kilometers will be 150 yuan.

Speaking at the forum, Liu also said he expects Chinese airlines to post a 10 percent rise in revenue passenger kilometers next year due to moderating oil prices and a strong domestic travel market.

The country's airlines posted combined losses of 4.2 billion yuan ($615 million) for the first 10 months of the year. According to the regulator's five-year plan, China's passenger traffic will rise by an average of 14.5 percent annually from 2006 to 2010, when it will hit 270 million.

Surcharges for overseas routes

The dropping crude oil price has led to several international aviation companies reducing their surcharges. Two days ago, Malaysian budget carrier AirAsia was the first to scrap fuel surcharges on all its flights including on long-haul carrier AirAsia X, in response to the decline in global oil prices.

Chinese airlines are allowed to adjust surcharges imposed on overseas routes.

Guangzhou-based China Southern Airlines cut its levy on overseas routes by up to 42 percent yesterday, after jet fuel prices fell 30 percent this year. The levy on flights to Middle-Eastern destinations lowered to 550 yuan, while the fees on European routes were slashed to 900 yuan.

Surcharges on flights to the Americas and Australia would be reduced to 950 yuan, China Southern said.