Airlines in China are giving their customers a Christmas present -- one that's wrapped up in Friday's reduction in fuel prices.

The fuel surcharges on flight tickets for domestic routes will fall by as much as 75 percent starting on December 25.

A flight of the China Southern Airlines. Airlines in China are giving their customers a Christmas present -- one that's wrapped up in Friday's reduction in fuel prices.

Surcharges for routes shorter than 800 kilometers will be slashed to 20 yuan (US$2.92) from the current 80 yuan, and for long-haul flights, the fees will decrease to 40 yuan from 150 yuan, the National Development and Reform Commission said on its website Friday.

Children, disabled military personnel and police officers injured on duty will receive a 50 percent discount on the new, lower surcharges, and infants don't have to pay anything extra. People who have already bought tickets, however, will be stuck with the previous rates.

"The decrease in fuel surcharges matches our expectations. The level is the same as it was in 2005 when the country restored the surcharges," said an analyst at Haitong Securities Co.

The cuts will reduce airline income, but any losses should be more than offset by the substantial decreases in jet fuel prices, the analyst said.

The NDRC lowered domestic jet fuel prices from 7,450 yuan a ton to 5,050 yuan, a move that will save domestic airlines dozens of billions of yuan a year.

In addition to the 32 percent cut in refinery-gate jet fuel prices, the commission trimmed gasoline prices 13.8 percent and diesel 18 percent. The reductions, the first in almost two years, were designed to reflect falling crude oil prices on the world market.

"The fuel price decrease will largely ease the financial pressures airlines are facing," said Yu Jianjun, an analyst at Huatai Securities Co. "For example, Air China can save 3.6 billion yuan a year, and China Southern Airlines can save 6.48 billion yuan."

Fuel costs account for more than 40 percent of an airline's expenses and are the biggest component of the expenditure side of the ledger.

Chinese airlines are also suffering heavy losses as demand plummets. Two major state-owned carriers have received state aid to help them through the slump.

Several domestic airlines have already reduced fuel surcharges on overseas flights, including China Eastern.

(Shanghai Daily December 20, 2008)