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Chinese Airlines Strained by Oil Prices

Chinese airlines are expected to sustain an aggregated loss of more than 3 billion yuan (US$375 million) for the first half of the year despite the brisk market demand, according to the General Administration of Civil Aviation.


A source close to a recent meeting of the administration attributed the loss, which is more than seven times over the same period of last year, to the surging oil prices that lifted up operation costs and offset the brisk market demand.


Director Yang Yuanyuan of the administration said that the economic situation faced by China's civil aviation sector in the past half year was "a mixture of joy and anxiety."


"On the one hand, airlines' operation scale kept expanding and activated the market demand while on the other, competition became fierce along with rising operation cost, which has put higher pressure on airlines seeking for both safety and profit," Yang was quoted as saying.


According to industry sources, the actual loss of the aviation industry would come in the industry's mid-year statistical report, which is expected to reveal the impact of rising oil prices when it is released in September.


By mid last year, fuel had accounted for nearly 32 percent of the sector's operation costs, up 10 percentage points from the 2001-2002 period when the industry posted a record high profit of 8.69 billion yuan (US$1.1 billion).


Experts predicted that the proportion would rise this year.


Chinese airlines have placed orders for more than 300 aircraft since last year, which industry analysts say may lead to both "a geometrical increase" in the sector's transportation capacity and overcapacity.


To cope with the problem, Yang has urged domestic airlines to be more careful in expanding their fleet and take effective actions to avoid the excessive use of resources while increasing revenue and cutting expenditure.


(Xinhua News Agency July 10, 2006)


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