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Air Surcharge Raised As Fuel Prices Increase
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China will lift jet fuel surcharges for the second time in a year on domestic flights to help air carriers cope with the impact of soaring oil prices.


Starting from September 1, the surcharge for each passenger flying less than 800 kilometers will rise to 60 yuan (US$7.5) from the current 30 yuan (US$3.7), the General Administration of Civil Aviation of China (CAAC), the industry regulator, said on its website yesterday.


Those flying further will pay a 100 yuan (US$12.5) surcharge, up from 60 yuan, it said.


The move came as the price of aviation fuel has risen 50 percent since March to more than 5,800 yuan (US$725) per ton.


Mainland airlines posted a combined loss of around 2.5 billion yuan (US$310 million) in the first half of this year, largely due to surging fuel prices, CAAC said last month. The losses were more than quadruple those in the same period last year.


China Southern Airlines, the country's largest carrier by fleet size, reported a net loss of 835 million yuan (US$104.4 million) for the first half of this year, about level with the loss incurred a year earlier.


Shanghai Airlines posted a net loss of 163.27 million yuan (US$20.4 million) in the first half, compared with a 13.35 million yuan (US$1.66 million) profit last year.


Crude oil prices in the international market have been over US$70 for weeks.


Prices are expected to continue to rise this year, analysts say. High oil prices and the impact of a traditionally slow season for travel in the fourth quarter will hurt airlines' profitability in the second half of the year, they said.


Luo Dewei, financial director of Shanghai-based China Eastern Airlines, said that a 1-percent increase in jet fuel prices means a 42.45-million-yuan (US$5.23 million) rise in the company's yearly transport costs.


Around 80 percent of airlines' operational costs are uncontrollable, among which, aviation oil accounts for at least 40 percent at most domestic carriers, said Liu Weiming, an aviation expert from the Civil Aviation Management Institute of China.


"Given rising fuel prices, it is reasonable that the government allows airlines to increase fuel surcharges to protect the aviation industry," Liu said.


However, in the long run, airlines should absorb the impact of soaring fuel prices by improving efficiency, saving aviation oil and optimizing their networks. "Increasing fuel surcharges will help, to some extent, offset losses for airlines in the short term, but may also risk losing customers," he said.


China reintroduced surcharges last August and raised them for domestic flights on April 10 after the authorities increased fuel prices.


At that time, the surcharge for passengers flying less than 800 kilometers was raised to 30 yuan from 20 yuan (US$2.5), while that for passengers going further was adjusted to 60 yuan from 40 yuan (US$5).


Hu Xiaobo, an executive at a Beijing-based joint venture who frequently takes flights while on business trips, said: "I have no choice but to accept increased fuel surcharges because my job requires me to fly across the country. But for tourists, they might hesitate to take flights."


(China Daily August 26, 2006)

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