October 1, 2008

China Cuts Jet Fuel Price

Text of report in English by official Chinese news agency Xinhua (New China News Agency)

[Xinhua by nearly 6.9 pct: "China Cuts Q4 Jet Fuel Price by Nearly 6.9 Pct"]

Beijing, Oct. 1 (Xinhua) - Chinese airlines, which are set to benefit from the ongoing "golden week" travel peak, started their fourth-quarter operation on Wednesday with another good news - lower jet fuel price.

In the forth quarter, jet fuel price on the Chinese mainland was lowered to 7,750 yuan (1,138 US dollars) per ton, nearly 6.9 per cent or 570 yuan (83.7 US dollars) less than in the third quarter.

The National Development and Reform Commission and the Civil Aviation Administration of China (CAAC) issued the notice on price adjustment Wednesday.

As of 2007, China's domestic jet fuel has been usually adjusted quarterly in accordance with the price fluctuation of international jet fuel.

Zhang Wei, an industry insider with the Chinese Ctrip.com website, said the cut resulted from a price drop on the international crude oil market.

"Investors are worried that demand for crude oil is becoming weak, which brings down the oil price. To the aviation industry, domestically and globally, lower oil price might mean a turning point," Zhang said.

Fuel cost accounts the biggest part, about 50 per cent, of the operating cost among Chinese airlines.

The Chinese aviation industry was faced with huge pressure on rising jet fuel price. Since this year, the country's jet fuel price was raised three times - by 210 yuan per ton in January, 1,500 yuan in June and 720 yuan in July. In the second quarter, China cut domestic jet fuel price by80 yuan per ton.

On July 8 when China Aviation Oil, the country's quasi- monopolistic jet fuel supplier, raised the fuel price by 720 yuan per ton, Chinese airlines had to buy fuel at a price 39 per cent more than the price at the end of 2007, which stood at 5,970 yuan per ton.

Chinese airlines, which was suffering a sluggish aviation market since this year, are also expecting a swelling traffic volume during the "golden-week" National Day holiday, which runs from Sept. 29 through Oct. 5.

Despite soaring fuel costs, three major Chinese airlines - Air China, China Eastern Airlines and China Southern Airlines - achieved profit in the first half thanks to huge exchange-rate gains, according to their half-year reports.

Aggregate exchange-rate earnings exceeded 6.4 billion yuan in the first half. These gains were about triple the first-half net profits of the three, which totalled 2.16 billion yuan.

Analysts attributed the currency gains to the appreciation of the yuan, or Renminbi, in the first half. From January to June, the yuan appreciated 6.5 per cent against the US dollar, nearly equivalent to last year's total appreciation.

The three airlines had massive dollar-denominated liabilities, but as the yuan strengthened, it cost them less to settle these liabilities, such as aircraft purchases and leases. This was conducive to paring costs. (One US dollar is equivalent to 6.81 yuan)

Originally published by Xinhua news agency, Beijing, in English 0242 1 Oct 08.

(c) 2008 BBC Monitoring Asia Pacific. Provided by ProQuest LLC. All rights Reserved.