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Aviation oil provider raises oil price, airlines feel pressure

(Xinhua)
Updated: 2008-07-10 11:13

China's major jet oil provider, the State-owned China National Aviation Fuel Group Corporation (CNAF), announced on Tuesday that it has raised aviation oil price by 720 yuan ($103) per tonne retroactive to July 1.

This will bring the domestic aviation kerosene price to more than 7,000 yuan per tonne.

The rise came after China's economic planner, the National Development and Reform Commission, raised jet fuel prices by 1,500 yuan per tonne as of June 20.

Chinese jet oil providers have long complained about shrinking profits caused by rocketing oil prices in the international market and a relatively low domestic price controlled by the government, which means they cannot pass on those increased costs to buyers.

An industry analyst, who declined to be named, told Xinhua that the move aimed to close the gap between State-set domestic caps and soaring oil prices.

The rising aviation oil price has placed great operational pressure on the airlines. Ma Xiaoli, a CITIC Securities Co researcher said expenditure on aviation oil contribute a major part of the airlines' cost.

Ma predicted that the earnings per share (EPS) of the country's leading airline company AirChina would decline 25.2 percent to 0.23 yuan, while China Southern Airlines' EPS would fall 45 percent to 0.40 yuan, as a result of the fuel price rise on June 20.

Domestic airlines' expenditure on aviation oil might climb 30 percent if the price continues to stay at a high level. The gap between world and domestic prices was still large, said Zhang Xun, an analyst with the CITIC Securities Co.

Liu Shaoyong, chairman of China Southern Airlines, had said earlier that airline companies were facing tough times because of rising fuel prices.

Liu noted that jet fuel costs account for more than 40 percent of China Southern's total cost. The airlines' operation cost increased by 15 billion yuan in a year because of oil price rises.