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Air travel hard hit by rising oil price
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Rising international airfares, mainly due to escalating fuel prices, are forcing big businesses to cut down on executive travel and small ones to cancel all overseas trips.

Lang Junxiong, owner of a small manufacturing company in Jinhua, Zhejiang province, said he used to fly to Europe five or six times a year to meet buyers or attend trade fairs. "However, since the beginning of this year, I have been talking to my customers mainly on the phone to save money," Lang, boss of Langshi Industry and Trade, said.

His customers understand. "They, too, are feeling the impact of rising airfares," Lang said. "It's a global phenomenon."

American Express Business Travel predicted that corporations will continue to be challenged to find new ways to keep travel budgets in check. It has seen corporations beginning to focus internally, implementing cost containing strategies to soften the blow of external pricing pressures.

What is more, companies are also starting to centralize business travel under procurement departments.

A recent report by American Express said oil price hikes was one of the main factors hitting business travel. Oil prices have smashed through the US$130 per barrel mark.

In January, the China National Aviation Fuel Group raised its jet fuel price to 6,587 yuan (US$920) per ton from the previous 6,371 yuan per ton. Industry analysts estimate that domestic carriers are likely to lose an average of 2 percent of their profit on average if the price of oil goes up by another 100 yuan per ton. Since early this year, the fuel surcharge on overseas flights out of Shanghai has been increased by at least 20 percent. This add-on charge for a single international trip amounts to US$50 to US$60.

Summer time used to be the busiest season for Yang Hongchang, supervisor of Shanghai Airlines Holiday Tours (SHAT) international ticketing. But this year, he has spent most of his time explaining to clients the reason for the increase in airfares.

"We have tried every means to cut ticket prices and give our customers the best discounts," Yang said. He said his company had even offered 10 to 20 percent discounts, something it does not normally do during the busy season from June to September.

"But our discounts just could not offset the increase in the fuel surcharge," Yang said.

"The number of first and business class clients has been reduced to six so far this year from last year's figure of more than 40."

Airlines seem to be taking the major hit. Fuel costs usually account for 40 percent of their total operating expenses.

"Their (domestic airlines) net profit probably will be trimmed by 15 to 20 percent due the oil price rises," transportation industry analyst Yao Jun, from China Merchants Securities, said.

(China Daily June 4, 2008)

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