According to the South China Morning Post, a daily newspaper published in Hong Kong, China Southern Airlines plans to lower operating costs by RMB1.3 billion ($190.9 million) this year amid rising fuel prices and slowing demand.

The plans include a 10% pay cut for all of the carrier’s management staff effective July. The payroll of the Guangzhou-based carrier will be cut by up to RMB100 million.

Several hundred executives including chairman Liu Shaoyong will be affected.

The airline said fuel prices and other factors were set to boost its 2008 operating expenditure by RMB1.86 billion

It said it would achieve the savings by cutting RMB800 million in planned investment on infrastructure and RMB500 million in other costs.
Sources: Quamnet and Reuters.

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

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

It is almost as if this site has warned longer, louder and earlier of the effect on travel of all sorts of the raising of oil in price. Current estimates for next month are $150 a barrel — by the time you read this it will be $140 — at which point air fares start to skyrocket and flights get canceled left, right and center. If it reaches $200 a barrel — and a lot of commentators think it will — then the whole tourism industry will have to be rethought.

Already it is biting.

Example: Lang Junxiong, owner of a small manufacturing company in Jinhua, Zhejiang province, said he used to fly to Europe five or six times a year to meet buyers or attend trade fairs. He said, ‘However, since the beginning of this year, I have been talking to my customers mainly on the phone to save money.’

American Express Business Travel predicted that corporations will continue to be challenged to find new ways to keep travel budgets in check They will do this by cutting back on travel.

A recent report by American Express said oil price hikes was one of the main factors hitting business travel.

Summer time used to be the busiest season for Yang Hongchang, supervisor of Shanghai Airlines Holiday Tours (SHAT) international ticketing. But this year, he has spent most of his time explaining to clients the reason for the increase in airfares.

Airlines seem to be taking the major hit. Fuel costs usually account for 40 percent of their total operating expenses.

Transportation industry analyst Yao Jun, from China Merchants Securities, said, ‘Their domestic airlines net profit probably will be trimmed by 15 to 20% due the oil price rises.’
In truth, it will be much worse than that.
Source: China Daily