China Southern seeks to raise fuel surcharge

Jun. 24, 2008 (China Knowledge) - China Southern Airlines Co Ltd<600029><1055><ZNH>, the largest airline by fleet size in the country, has sought permission of the National Development and Reform Commission (NDRC) for raising fuel surcharge to help offset the rising prices of jet fuel.

Last Friday, the government raised jet fuel prices by RMB 1,500, to RMB 7,450 per ton. As jet fuel makes up 40% of China Southern's operational costs, the price hike is expected to add RMB 15 billion to costs, according to Chairman Liu Shaoyong.

Secretary of the board of Chinese Eastern Airlines Luo Zhuping said airlines will submit applications to NDRC for higher fuel surcharge but hike in jet fuel price is not too high and it is still lower than the current international price.

Analysts familiar with the market said the increase is higher than the market expectations, although the increase is reasonable.

Two proposals have been out for fuel surcharge rate increase, and they are likely to be cleared and take effect from July 1. One is RMB 80 for flights less than 800 kilometers and RMB 130 for flights over 800 kilometers, and the other is RMB 100 for flights less than 800 kilometers and RMB 150 for flights over 800 kilometers.