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China plans to lower fuel prices to help ailing airlines
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China plans to help its unprofitable airlines by lowering domestic fuel prices before the end of this year after oil prices tumbled 60 percent.

The National Development and Reform Commission, the country's top planning agency, is reviewing a proposed cut, Liu Shaocheng, head of research for the Civil Aviation Administration of China, told reporters yesterday at a conference in Beijing. He didn't provide further details. Lower prices may help China Southern Airlines Co, the nation's biggest carrier, and other airlines as they struggle with slower demand caused by the nation's cooling economy.

The country's airlines posted combined losses of 4.2 billion yuan (US$615 million) for the first 10 months of this year, Liu said.

China controls fuel prices for domestic flights to help contain inflation. Airlines have to pay market rates for international services. Crude yesterday traded below US$60 a barrel, a 20-month low, compared with a record US$147.27 in July.

Air travel in China rose 2.4 percent in the first 10 months to 159.7 million, Liu said. That trailed the regulator's forecast for a 14-percent full-year increase, as carriers were forced to cancel flights because of natural disasters. Cargo volume has risen 3 percent this year through last month to 3.39 million tons.

Passenger numbers may rise as much as 10 percent next year, Liu said. 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.

Chinese airlines will also likely make more use of plane-leasing because their high debt levels and the global credit crunch are deterring banks from lending them money, Liu said. "The economic slowdown makes it difficult for airlines to get bank loans," he said. Leasing currently accounts for 65 percent of China's commercial aircraft, with the rest financed by banks, he added.

Travel demand has weakened because of China's cooling economy. Growth may slow to 5.8 percent this quarter, from an average more than 10 percent in the past five years, according to a November 3 estimate by Credit Suisse Group AG. That would be the lowest rate since at least 1994, according to Bloomberg News.

(Shanghai Daily November 13, 2008)

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