The National Development and Reform Commission yesterday raised domestic jet fuel prices by about 11 percent to keep pace with rising global oil prices, sources said.

Fuel prices rose to 4,450 yuan (US$652) a ton from the previous 3,990 yuan a ton, which is estimated to cost the country's three largest airlines an extra 2 billion yuan this year.

An official with China Petroleum and Chemical Corp, also known as Sinopec, confirmed that the company yesterday received a notice from the NDRC, the country's top economic planner, about the price increase.

"The price increase tracks the rising global oil prices," said Ma Xiaoli, an analyst of CITIC Securities Co.

Ma estimated the fuel price rise will cut profit for Air China by 490 million yuan, China Southern Airlines by 990 million yuan and China Eastern Airlines by 500 million yuan.

The oil price increase is also set to cost Shanghai Airlines 190 million yuan and Hainan Airlines 230 million yuan in profit.

"China Southern and Shanghai Airlines will face more challenges than the other carriers as they focus on domestic routes," she said.

Fuel costs account for about 40 percent of an airline's expenses and are the biggest expenditure component, market observers said.

But an analyst does not see airlines raising their ticket prices as demand for air travel is already weak.

"Domestic carriers are not likely to raise ticket prices following the increase as they still have to consider the demand," said Li Lei, an analyst at China Securities Co. "With demand waning, carriers have to undertake the rising costs by themselves rather than pass them to passengers."

The domestic carriers suffered heavy losses because of slumping demand and higher fuel prices last year, with the three biggest airlines losing a total of 28 billion yuan.

The jet fuel price rise is also seen as a signal that the NDRC will soon raise gasoline and diesel prices.

There was widespread talk that the government would raise oil prices by nearly 10 percent earlier this month, but the plan was canceled.

(Shanghai Daily May 20, 2009)