[photopress:air_refuellling_an_aircraft.jpg,full,alignright]China’s National Aviation Fuel Holding (CNAF), the country’s near-monopoly jet fuel distributor, is now charging domestic airlines about 15% more.
TheRMB900 per tonne hike, pending final government approval, follows a surprise increase in ex-refinery jet fuel prices of RMB1,500 per tonne from June 20.
This is the biggest quarterly rise in the last two years.
Ex-refinery prices – rates at which refineries sell to CNAF – are regulated by Beijing in a way similar to those of gasoline and diesel.
Although China is somewhat protected from world trends the soaring price of oil – now over $140 a barrel – has forced this action.
What does this mean for China’s airlines? They have to recoup the price rises one way or another.
Charging the passengers more by way of the fuel surcharge. Regulators have approved a higher surchage of US$11.67, up from US$8.75, for flights of 800 km or less, and US$21.87, up from US$14.58, for longer distances. The surcharges will only cover about 66% of the airlines’ increased fuel costs.
The air transport industry has forecast a loss of US$2.3 billion this year if crude oil averages US$107 a barrel. Oil prices rose to about US$143 a barrel yesterday.
And fare increases reduces the number of people wanting to fly. It forces businesses to look at alternative ways of communicating than face to face. As prices go up, passenger numbers, at least for a short period, go down.
Using smaller aircraft. Which works but aircraft ordering takes years not weeks or days. This is only a long term solution.
Cutting out unprofitable routes. This will happen.
In the short term this price rise is going to seriously affect the profits of China’s aviation. In the long term it is seriously going to affect its growth.