An aircraft refuels at an airport in Xi’an. (Photo/Xinhua)
Passengers on Chinese airlines will continue to shoulder larger portions of the climbing cost of air travel as aviation fuel prices in China are among the highest in the world.
Domestic airlines say they are forced to pass more costs onto passengers because they have to pay increasing fuel prices to the state-run China National Aviation Fuel Group (CNAF), which holds a near monopoly on aviation fuel distribution in the country. The company says in response that it relies heavily on imports because domestic oil refiners can only supply 60% of market demand.
Further, CNAF says it has had to adjust the price of fuel used at airports located in different areas to ensure more balanced regional development. The price structure of aviation fuel also contains a value-added tax of 17%, making prices in China higher than those overseas.
Aviation fuel costs in China are among the world’s highest, according to Tang Yanlin, chairman and CEO of the International Air Transport Association, speaking at the China Civil Aviation Development Forum held in Beijing from May 23-24. Carriers pay about US$400 million in fuel costs to Chinese airports each year. Domestic airlines will be more competitive if fuel prices can be reduced to the levels at international airports, said Tang.
Rising fuel costs have eaten away at the profits of Chinese carriers. The earnings of Air China, China Eastern Airlines, China Southern Airlines and Hainan Airlines fell 85.7%, 73.7%, 74.2% and 35.7%, respectively, in the first quarter of 2012. These drops came even as airlines shifted costs to customers by raising the fuel surcharge for domestic routes over 800 kilometers to the record level of 150 yuan (US$23.60). The extra fuel charge for routes shorter than 800km is now 80 yuan (US$12.60) per passenger.
Domestic aviation fuel prices surged by roughly 32.7% in 2011, followed by a combined increase of 701 yuan (US$110) a metric ton on three more increases — one each in February, March and April of this year — to hit a historic high of 8,061 yuan (US$1,270) a ton. The price dropped by 129 yuan (US$20.33) in May because of declining crude oil prices in the international market, but it remained at a comparatively high level.
Airline executives say the discrepancy between importing and selling prices in aviation costs has reached more than US$100 a ton at airports in China, much higher than the US$65 in most other Asian airports. Most foreign airlines treat the larger price difference as part of the "service charge" for using Chinese airports.
Senior executives at CNAF have defended the company by saying that aviation fuel prices at the country’s airports are not the highest in the world. They say the company has to rely on imports for 40% of aviation fuel, while it incurs operating losses at 70% of domestic airports. CNAF has a social responsibility to help smaller and remote airports survive by shifting resources and charging higher fuel prices at larger airports in developed regions, the executives say.
CNAF says its fuel business is operating at a loss at 130 of China’s 167 airports. By the end of 2015, more new airports will be constructed to boost the total number to 230 or 240.
Another factor leading to higher costs is the 17% value-added tax the government imposes on fuel used for flying, which makes airlines feel that prices in China are higher than those at airports abroad. The CNAF executives have said that the company is absorbing increased costs from import, labor and transportation, not passing all the extra financial burdens onto airlines.
Airline executives disagree, saying that it is impossible to get fairer prices in a market of controlled by a near-monopoly.
Beijing has begun to gradually open up the market by allowing a few new suppliers to provide aviation fuel at selected airports, part of wider economic liberalization efforts. But passengers on Chinese airlines will still be forced to take a bigger share of the costs for some time because of the lack of free market competition.
Editorial Message
This site contains materials from other clearly stated media sources for the purpose of discussion stimulation and content enrichment among our members only. does not necessarily endorse their views or the accuracy of their content. For copyright infringement issues please contact