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November 11, 2009

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Jet fuel surcharges to return

CHINA will resume fuel surcharges on domestic air routes to offset climbing costs after the nation's top planning body raised jet fuel price by 6.6 percent.

The National Development and Reform Commission, which controls fuel prices, has raised ex-factory prices for jet fuel by 320 yuan (US$46.87) per ton to 5,190 yuan starting today.

The commission said it would soon resume fuel surcharges following the increase but they would be strictly controlled to stabilize market prices.

"The price increase will cost China Southern Airlines 125 million yuan by the end of this year, Air China 83 million yuan, China Eastern Airlines 65 million yuan and Hainan Airlines 38 million yuan," said Wu Li, an analyst at Guotai Jun'an Securities Co.

"We estimate that the surcharge will reach 40 yuan per capita for routes longer than 800 kilometers and 20 yuan per capita for shorter ones, which can offset rising costs completely."

The commission approved fuel surcharges in August 2005 when ex-factory prices reached 4,740 yuan per ton.

In January this year, the NDRC suspended the surcharges due to a fall in kerosene prices as world oil prices dropped. Since then, world oil prices have been on the upswing.

Some airlines, including Air China and China Southern Airlines, have applied to resume fuel surcharges to offset higher fuel expenses.

Air China said yesterday it had yet to receive notification about resumption of fuel surcharges.

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

The NDRC has raised jet fuel prices four times this year after international crude prices morethan doubled from a low in February to US$80 a barrel.


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