Raising Fares: Solution to Problems Facing Civil Aviation?

Starting on November 5, 23 airlines across China raised airfares on domestic routes by 15-20 percent. The move has found a ready response in other industries, including those of tourism, which have direct relations to airlines. Concerning this, the General Administration of Civil Aviation of China (GACAC) said that the raising of fares was a provisional emergency measure, and that the fares would be restored to their normal level if the price of aviation fuel went down.

According to an official with the GACAC publicity department, the emergency move was adopted because of pressures from the rising price of aviation fuel. Since November 5, 1999, the producer price of aviation fuel has gone up eight times, a rate rise of 86 percent.

In order to ease the impact of rising fuel prices on the cost increase for airlines, GACAC, with the approval of the State Development Planning Commission, allowed various airline companies to collect fuel surcharges from passengers in the form of a higher ticket price as early as November 1, 2000. Whether or not to raise the ticket prices was left to the discretion of airline companies, but the rate of rise must be less than 20 percent of a publicized price, and the maximum amount charged additionally shall be less than 150 yuan for a one-way ticket.

As the rise of airfares directly involves the interest of passengers, an official noted, the airline companies must publicize the air routes and flights seven days ahead where a ticket price is raised, and such a raise shall not be implemented before it is submitted to GACAC for review.

In the meantime, the rise in airfares is considered to be only a provisional measure. GACAC has decided to establish a correlation between the changes of fares on domestic air routes and the changing price of aviation fuel. Thus, with the actual supply price of domestic aviation fuel on November 1, 2000 as a base line, when such a price goes up or down by 10 percent, the air fare on domestic routes may go up or down by 3 percent. If the price of fuel goes down by a large margin, the ticket price may be restored to the normal level.

Airfare is a sensitive issue in the civil aviation sector. Since the GACAC ordered a ban against discounts, there have been a large number of appeals to lift the ban and the passenger flow has been decreasing. The recent 15-20 percent increase in the ticket prices has produced strong repercussions among the traveling society. The tourism sector has produced the strongest response since the cost of long-distance travel by air is obviously much higher than that by train, which will inevitably lead to a rise of long-distance tourist prices. This is a very unfavorable factor to the growth of the domestic tourism business, according to the general managers of many travel services.

According to related experts, the pressure of rising prices of aviation fuel could be alleviated by raising airfares, but the negative impact on civil aviation resulted would be in the long-term. At present, it is more important for the civil aviation sector to raise market shares than to reduce costs, the experts said.

Actually civil aviation is exposed to competition from all sides. The ban against discounts last year led to a loss of many market shares on its part. This year, the speed of trains was raised once again, meaning that the railway sector has the power to win over the medium and short journey market from civil aviation. Under such a grim situation, GACAC not only failed to lift the ban against discounts, but instead raised airfares by a large margin, which will probably cause a new round of decreases in passenger use.

The experts consider that the fundamental way out is for the civil aviation sector to improve service and management, and raise labor productivity and operational efficiency through reforms in the sector, therefore reducing costs and enhancing benefits.

But some airline companies gave different opinions. According to a market manager with Shenzhen Airlines, raising the cost of airfares would not affect the passenger market much. Beginning on November 1, Shenzhen Airlines began to sell their tickets after November 5 for a raised price. The current ticket selling and overall operation have not shown a fluctuation of passenger flow, the market manager said.

As a matter of fact, he said, the increased rate is not high enough to completely ease the pressure caused by rising oil prices and the airlines still have to bear the major part of the increased costs.

The Shanghai and Wuhan airlines consider the raising of airfares as just a makeshift device that can alleviate the difficulties currently facing the civil aviation sector. As many elements contribute to the cost of air transportation, according to them, raising airfares alone is not the fundamental solution.

As to the question of whether the raising of airfare rates will reduce the number of passenger, these two airlines agree that the impact on individual airlines may not be big, but the impact on the air transportation market at large will be unavoidable.

(CIIC 12/04/2000)

In This Series

Abroad Travel: the Price Up 50% Higher Than Before

The Influence of Rocketing Oil Prices on China


Chronicle of Major Developments in China's Civil Aviation Sector in October


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