China's airlines hit with domestic fuel price increase

China's airlines are bracing for a CNY140 ($20.70) per ton increase in domestic fuel costs after the Chinese government announced it is raising its domestic fuel price from CNY5,470 to CNY5,610 per ton.

Industry analysts note that fuel costs account for more than 40% of carriers' total operating expenses on domestic routes. China Southern Airlines, the largest domestic airline, estimates its annual fuel bill will increase by CNY336 million-CNY358.4 million. China Eastern Airlines and Air Chinaare expected to see yearly increases of CNY196 million and CNY217 million respectively.

Last year the government changed its policy of permitting individual carriers to choose the timing and amount of fuel surcharges. It now requires them to base surcharges on directives from authorities in Beijing.

The government stipulates that airlines should link surcharges on domestic routes with domestic fuel costs, meaning they can impose surcharges only when domestic fuel prices rise above CNY4,410 per ton. As a result, there is a low probability the fuel surcharges will change even as domestic fuel prices are raised.