YZ> Jay, how come I read (from the US media) that the service cost in China inflated a great deal (almost daily)
China lets airlines raise fares as fuel prices soar
Move likely to hit low-income flyers
China's aviation authority has allowed domestic airlines to raise economy fares by up to 17% to counteract a rise in jet fuel prices sparked by fears of a war with Iraq.
The new policy would apply to all routes across the country, a spokesman for the industry regulator, the Civil Aviation Administration of China (CAAC), told Reuters.
``Ticket fares for first-class and business-class passengers should be set at 150% and 130% of economy class prices,'' the official added. He declined further comment.
China's largest carriers, China Southern Airlines and China Eastern Airlines, responded by saying they would raise domestic ticket prices by 17% immediately.
But China Southern's company secretary Su Liang said the increase would not have a significant impact on the bottom line as the carrier was offering heavy discounts on many routes in the quiet period after the Lunar New Year holiday which has just finished.
Only a tiny proportion of China's travellers choose to fly, although their numbers are swelling.
Domestic airlines carried 84.3 million passengers in 2002, up 12% year on year, while some 15 billion journeys were made by road, according to Transport Ministry estimates.
Business travellers made up a large part of airlines' domestic customer base and would be able to digest price rises, so the effect on carriers was likely to be ``not very great,'' said China Everbright Securities analyst Deng Hongmei.
Other analysts said fare increases risked scaring away lower-income travellers and might eat into margins of carriers with a higher proportion of non-business flyers.
``The ticket price rise may compensate for rising fuel costs for airlines, but a drop in the number of passengers will eat into ticket income,'' said analyst Huang Yizhi of Haitong Securities.
Worries about a US-led war on Iraq, plus renewed threats against US economic targets, have helped lift oil prices to two-year highs, hitting airline bottom lines already hurt by an economic slowdown and safety fears depressing air travel demand.
The International Air Transport Association (IATA) said last week any war with Iraq would send jet fuel prices soaring. Jet fuel prices, which move in tandem with crude oil, have leapt 30% since October to around 90 cents per gallon, IATA said.
Chinese carriers, most of which are marginally profitable in an overcrowded domestic market, are bracing for the same higher security provisions and fuel costs their international counterparts have faced since September 11, 2001.
China's aviation regulator now sets guidelines for ticket prices on nearly all domestic routes, although it has allowed discounting on certain flights, mainly to attract tourists.
In reality, unauthorised discounts mean domestic fares are now relatively low _ despite booming demand for air travel with personal incomes on the rise _ a constant drag on earnings.
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