China Southern Airlines to benefit from jet fuel price cut

Thu. April 09, 2009; Posted: 03:34 AM

BEIJING, Apr 09, 2009 (Xinhua via COMTEX) -- CNLVF | Quote | Chart | News | PowerRating -- The National Development and Reform Commission, China's top planner, recently issued two documents to cut the ex-factory price of jet fuel by 430 yuan and 30 yuan per ton respectively, according to an insider with China National Aviation Fuel (CNAF).

The aggregated 460 yuan/ton price cut is expected to trim the annual cost of the domestic airline industry by about 4 billion yuan and China Southern Airlines (ZNH.NYSE; 01055.HK; 600029.SH), the largest domestic flight carrier, will benefit the most, said Li Lei, an analyst with China Securities Co., Ltd.

He estimates annual cost reduction of 1.17 billion yuan for China Southern and 600 million yuan respectively for Air China (00753.HK; 601111.SH) and China Eastern Airlines (CEA.NYSE; 00670.HK; 600115.SH).

Despite lowered expenditure on fuel cost, Chinese airlines still face some challenges in increasing income. They've seen a source of income deprived since the beginning of the year with the scrapping of fuel surcharge tax.

"Statistics show the actual price level of airlines fell 10 percent in the period from January to February and climbed up somewhat in March", noted Li.

With rising global oil prices over the past years, fuel oil has taken an increasing proportion in the cost of airline operators. Earlier China Eastern said its cost of jet fuel has climbed up from 30 percent of the total in 2003 to 42 percent. Enditem

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