Air China and China Eastern Airlines carried fewer passengers in June than a year earlier. The decline in traffic at two of China’s three major airlines extended a drop in May.

Air China, the country’s flag carrier, flew 2.67 million passengers in June, down 7.5% year-on-year.
Volume on international routes down 15.5% while domestic traffic fell 5.3%.
Air China reported a 4.9% slip in cargo volume in June to 74,509 tonnes
China Eastern’s passenger volume fell 11.6% to 2.75 million in June.
China Eastern’s freight volume fell 5.9% to 69,400 tonnes.
International service was down 24.6% and domestic service 9.7%.

The declining volume has compounded headaches from higher fuel prices, which boosted operating costs, and marks a rare reversal for an industry that has been buoyed in recent years by China’s strong economic growth.

China Southern Airlines, China’s largest carrier by fleet size, and Shanghai Airlines have yet to release June figures. Both also reported a slip in passenger numbers in May.

Chinese airlines have also raised domestic jet fuel surcharges as much as 50% to offset pressure from high oil prices and further increases are possible.
Source: Reuters

Chinese airlines said the current increase in jet fuel surcharges was not expected to bring much benefit for them.

CAAC has allowed Chinese airlines to increase surcharges to:

RMB80 (about $11.66) from RMB60 for domestic flights of 800 km or less.
RMB150 (about $22) for domestic flights longer than 800 km.

This was the fourth time that the Chinese aviation regulator has raised surcharges since August, 2005, and the second time within eight months.

Luo Zhuping, a director of China Eastern, one of the country’s major carriers, was quoted by the Guangzhou Daily as saying, ‘There is not sufficient air traffic demand now. Despite the rise in fuel surcharges, airlines will have to make more discounts in order to compete for passengers.’

Wen Shuang, of a tourism company based in South China’s Guangdong Province, said the increase in jet fuel surcharges was not expected to cause notable fluctuations to air ticket prices for tourists. He said, ‘The fuel surcharges rise, but air tickets are declining.‘

Liu Shaoyong, chairman of China Southern Airlines, noted that jet fuel costs account for more than 40% of China Southern’s total cost.

The airlines’ operation cost increased by RMB15 billion a year because of oil price rises.
Source: China View

Air Canada has slashed its Vancouver-to-Beijing/Shanghai service from 14 flights a week to seven as the airline cuts costs in response to record fuel prices. From October 26, it will fly from Vancouver to Beijing three times a week and from Vancouver to Shanghai four times. It currently offers a daily service to both Chinese cities.

Canada is still trying to nail down an Approved Destination Status deal with China, which would allow more Chinese residents to travel to this country. Even without that status, China remains a vital market for British Columbia

Last year more than 91,000 Chinese residents visited thereputting it ahead of other international markets like Germany, Taiwan and Hong Kong. The average Chinese visitor in 2006 spent more than $2,800.

The airline announced last month it would cut its system capacity by 7% and shed up to 2,000 jobs to become more efficient as fuel costs skyrocket.

University of B.C. associate professor Marc-David Seidel doubts the cutbacks will have a huge impact on travel between Canada and China, noting Air China and China Eastern Airlines still offer regular services from Vancouver to Beijing and Shanghai.
Source: The Vancouver Sun

China Southern Airlines, the nation’s largest carrier by fleet size, has applied for an increase in fuel surcharge to offset expected losses resulting from the recent nationwide fuel price hike.

China Southern’s general manager Liu Shaoyong told the Beijing Times that the airlines asked to raise the surcharge ‘by a margin reflecting the current fuel price level.’ He did not give any figures.

Analysts said the fuel price increase is a problem as it raises their largest cost component at a time when domestic traffic sees some weakening. They say the carriers would need around a RMB70 increase in surcharge to offset the hike in domestic fuel prices.

When the government raised the price of jet fuel by 25% it added about RMB15 billion a year to the domestic carriers’ operating costs.

A China Southern spokesperson confirmed the airline has applied to the National Development and Reform Commission for a fuel surcharge increase but has yet to obtain approval.

An Air China spokesperson, meantime, said ‘it is very likely that if the authority allows upward adjustment of fuel surcharge [to CSA], it’s a green light for peers as well.’ Passengers currently pay a fuel surcharge of RMB60 on flights of up to 800 kilometers and RMB100 on flights beyond that.
Source: The Standard

China’s National Aviation Fuel Holding (CNAF), the country’s near-monopoly jet fuel distributor, is now charging domestic airlines about 15% more.

TheRMB900 per tonne hike, pending final government approval, follows a surprise increase in ex-refinery jet fuel prices of RMB1,500 per tonne from June 20.

This is the biggest quarterly rise in the last two years.

Ex-refinery prices — rates at which refineries sell to CNAF — are regulated by Beijing in a way similar to those of gasoline and diesel.

Although China is somewhat protected from world trends the soaring price of oil — now over $140 a barrel — has forced this action.

What does this mean for China’s airlines? They have to recoup the price rises one way or another.

Alternatives are:

Charging the passengers more by way of the fuel surcharge. Regulators have approved a higher surchage of US$11.67, up from US$8.75, for flights of 800 km or less, and US$21.87, up from US$14.58, for longer distances. The surcharges will only cover about 66% of the airlines’ increased fuel costs.

The air transport industry has forecast a loss of US$2.3 billion this year if crude oil averages US$107 a barrel. Oil prices rose to about US$143 a barrel yesterday.

And fare increases reduces the number of people wanting to fly. It forces businesses to look at alternative ways of communicating than face to face. As prices go up, passenger numbers, at least for a short period, go down.
Using smaller aircraft. Which works but aircraft ordering takes years not weeks or days. This is only a long term solution.
Cutting out unprofitable routes. This will happen.

In the short term this price rise is going to seriously affect the profits of China’s aviation. In the long term it is seriously going to affect its growth.
Source: Reuters

Delta Air Lines is cutting back its Atlanta-Shanghai flight to five times a week for the winter instead of daily, in what it calls a move to better match capacity to ‘reduced market demand.’

The airline launched the daily Atlanta-Shanghai flights March 30 with much fanfare, after receiving approval for the flights last September.

The change to five days a week goes into effect November 7. It is stated the service will return to daily in May 2009 for the summer. Possibly that statement is made with crossed fingers.

Delta spokesman Kent Landers, said, ‘As a new carrier in China, we learn more about the demand patterns and the profile of the market. Delta remains committed to the China market and serving that market from Atlanta.’

He said the airline makes adjustments ‘to make sure we have a year-round profitable operation.’

Asked if the soaring cost of fuel played a role in the decision, Kent Landers said, ‘Fuel has an impact on the entire network and we watch that very closely. But this is a situation where we’re matching the right profile to the market and especially what we’re expecting in the winter.’

It sounds like a PR at bay.

Delta received U.S. Department of Transportation approval for the change and has already removed the flights from its inventory. No mention was made of the rising cost of fuel and the fact that if it keeps rising those flights will never be reinstated.

The price of a barrel of oil has doubled in the last year.
Sources: AJC and BusinessWeek

U.S. airlines say they cannot afford to fly new routes or maintain all flights to China and other countries that restrict access, but they still want to keep their rights to serve those destinations.

Carriers asked the Bush administration to preserve rights for two years, an unusually long time, while they scramble to reverse a financial nose dive blamed on expensive fuel prices.

The carriers wrote in a joint application to defer service: ‘All U.S. airlines are being forced to re-evaluate the flights they offer to avert financial catastrophe.’

American Airlines; Delta ; United Airlines; US Airways; Continental Airlines; and Northwest Airlines expect a decision soon from the Transportation Department.

Privately held Spirit Airlines called the proposal an anti-competitive effort by bigger rivals to ‘deep-freeze’ valuable routes while slashing other service.

The latest request, if granted, would represent one of the only government steps to assist airlines during the current downturn, which some analysts predict could be worse than the last one from 2002-06 when four big airlines went bankrupt.

Andrew Steinberg, an attorney with Jones Day and a former senior U.S. official on international aviation matters, said the industry is ‘clearly in financial extremis’ and said the government ‘has to recognize’ airlines cannot fulfill all of their overseas plans because fuel is so expensive.

He said, ‘I think it’s a shame because international service is where the profits have been and where the growth is.’

U.S. airlines are on track to pay more than $61 billion for fuel this year, up $20 billion over last year.

Airlines did not specify where they want to halt or slow service but some have said individually that China routes are too costly.
Source: Reuters

Aside from cutting jobs and reducing flights, airlines all over the world are finding every way possible to further diminish their soaring aviation fuel bill.

The added measures being undertaken include cleaning the aircraft of grime, less water for the taps in the washroom and changing seats with lighter ones.

Then there are ways of making the passenger pay the extra. In Bangkok last week some airlines were charging for each case checked in. And in the UK some airlines now charge you for checking in.

Unless fuel prices go down, the collective fuel bill of all American air carriers will top $61.2 billion in 2008, a fivefold jump from 2002 levels.

Many airlines are canceling flights, selling off old and therefore inefficient aircraft. In the United States Northwest will retire DC-9 jets, American Airlines will sideline its MD-80s and United will temporarily rest six 747s.

Duplicate flight manuals will no longer be carried, instead half of the set will be carried by the pilot and the other half by the first officer. There are plans to discard printed manuals.

China Airlines and Eva Airways, Taiwan’s major carriers, have announced they will reduce their flights by as many as 100 passenger flights a month.

This is a major crisis for the airline and for the tourist industry.

On a British Airways flight out of London the writer had three seats. This has not happened for years.

Some hotels in Asia are already finding their advance orders are now. And there is still plenty of hotel space for the Olympics.

If the price of oil surges higher this problem will get much, much worse and many airlines will go to the wall.
Source: AHN