China looks set to hike fuel prices to try to force further consolidation among its many unprofitable local carriers as local fares are set to rise.
The authorities have already cleared airlines to raise air fares for local residents by up to 20 per cent from July following a rise in fuel prices by US$24 per tonne in March. But the state-owned China Aviation Oil Supply Corporation plans to follow that by imposing another increase of at least $12 per tonne, according to local airline sources.
The move could cause some of the country's hard-pressed carriers - only six of the nation's 30 plus airlines are profitable - severe financial problems. Some analysts believe the rises are designed to put pressure on marginal carriers to force them out of business or into mergers with bigger airlines.
As recently as February China's official Xinhua news agency quoted Shen Yuankang, vice minister of the General Administration of Civil Aviation of China, as warning at a meeting of domestic airline officials that weaker companies must either merge or go out of business 'in a bid to stem losses and boost efficiency in the industry'.
Further financial pressure from an additional fuel price rise could be compounded by a downturn in domestic passenger numbers with the rise in local air fares. Local fares have already risen by 3 per cent in April.
The 20 per cent rise could put local travellers off, though analysts expect any slowdown to be temporary. One Hong Kong-based analyst says that the demand for air travel in China is so high the impact on the market is likely to be fairly minimal.
Source: Airline Business
