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Airlines call for fuel surcharge

AIRFARES for China flights may rise soon as a result of surging jet fuel prices.

Some domestic airlines have applied to resume fuel surcharges on domestic routes to offset higher fuel expenses that could cost the industry as much as 7 billion yuan (US$1.02 billion) a year.

China Southern Airlines, the country's biggest carrier by fleet size, has applied to the regulator to re-institute fuel surcharges, Chairman Si Xianmin confirmed this week.

The airline is likely to feel more pressure from the fuel price increase than others because it operates more domestic flights than its competitors.

Air China, the country's flagship international carrier, also said it will submit an application to authorities to resume the surcharges after it receives details of the latest price increase.

The jet fuel run-up is expected to cost China Southern an extra 1.41 billion yuan a year, Air China 780 million yuan, Shanghai-based China Eastern Airlines 680 million yuan and Hainan Airlines 390 million yuan, said Wu Li, an analyst at Guotai Junan Securities Co.

The National Development and Reform Commission, which controls fuel prices, authorized state oil firms to raise factory-gate prices for jet fuel almost 26 percent to 5,050 yuan a ton effective on Tuesday, following a 13 percent rise in May.

"Surcharges may return to the level in November 2007, when routes longer than 800 kilometers carried a 100 yuan fee and others were priced at 60 yuan per person," said Li Lei, an analyst at China Securities Co.

World oil prices at that time were running around US$80 a barrel, compared with US$69 a barrel yesterday.

The commission suspended fuel surcharges on domestic flights in January due to a fall in kerosene prices as world oil prices dropped. At that time, the surcharge for routes longer than 800 kilometers was 40 yuan and 20 yuan for others.

Since then, world oil prices have been on the upswing.

Fuel costs are the biggest component of an airline's expenses, accounting for more than 40 percent of total costs.


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