Wednesday, February 23, 2011

Beijing raises domestic jet fuel prices 5.8%

The Chinese government on Saturday responded to escalating oil prices by raising domestic jet fuel prices 5.8% to CNY6,340 ($963.56) per ton, putting added cost pressure on the country's airlines.

Fuel costs, on average, comprise about 40% of Chinese carriers' total expenses. Air China and China Eastern Airlines previously used fuel hedging to offset rising fuel prices, but Beijing disallowed it in 2008 after the two carriers took big hits on their hedging contracts when the oil bubble burst (ATW Daily News, Nov. 25, 2008).

CA and CEA are reportedly considering restarting fuel hedging but first must receive government approval. As a short-term solution, most Chinese carriers announced they have increased fuel surcharges on domestic routes.

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