The Chinese government raised domestic jet fuel prices to CNY6,840 ($1,044) per ton, up 7.9% from CNY6,340 per ton in February, in response to escalating oil prices. This is the second price hike this year, according to ATW Daily News.
Fuel costs comprise more than 40% of Chinese carriers’ operating expenses. China Southern Airlines, which operates 80% of its flights on domestic routes, could see its fuel costs increase by CNY1.32 billion annually owing to the change. Air China and China Eastern Airlines, which operate 70% of their flights on domestic routes, could see their annual fuel costs rise by CNY1.12 billion and CNY1.15 billion, respectively.
As a short-term solution, most Chinese carriers announced they have increased fuel surcharges on domestic routes. China’s big three carriers are reportedly considering restarting fuel hedging but first must receive government approval. Beijing prohibited airlines from fuel hedging after CA and CEA took big hits on hedging contracts in 2008.