China Economic Review
Charting China’s changing economic terrain · Since 1990
Fuel surcharges to be pegged
November 16, 2009
With immediate effect, China has pegged the price of jet fuel as well as fuel surcharges on domestic air flights. This order comes in a directive jointly issued by the National Development and Reform Commission (NDRC) and the Civil Aviation Administration of China (CAAC).Note that the airlines can independently decide the surcharge they make to the customer. They may tie it to the amount pegged or decide independently what it should be, which should bring some fine flight price adjustment to the market.
Domestic jet fuel price of $606 a ton is set as the benchmark price. If the domestic jet fuel price drops below that, airline companies will not be allowed to make a surcharge. But if the jet fuel overtakes that benchmark price, airline companies can collect surcharges to cover a maximum of 80% of their costs directly related to the hike of jet fuel price.
iStock Analysis explains the basic format which, for people not in the industry, is difficult to follow. Basically, if international crude oil prices (normally the weighted average price of Brent, Dubai and Minas are crude oil benchmarks) records an average fluctuation of more than 4% in 22 consecutive working days following the previous adjustment, the NDRC can adjust domestic product oil prices accordingly.