China’s government giveth, and taketh away
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Chinese airlines have been in good spirits of late. Following a disastrous 2008 (which was supposed to be their ‘annus mirabilis’, with the Olympics and all), which saw their balance sheets take a hammering from fuel hedging bets that would make Macau’s high-rollers wince, 2009 has offered the country’s carriers some unexpected cheer.
With fuel prices now down, and customers no longer frightened off by hefty surcharges, domestic travel has risen once again. Air China reported an 18.9% rise in domestic passenger traffic (measured in RPK) in Q1 2009 - not bad going considering the world has fallen into an economic cesspit. Indeed, the same carrier has predicted that it may well make a profit this year; helped no doubt by the multi-billion yuan government bailouts that have kept the country’s carriers afloat.
So considering this buoyant mood amid China’s airlines, I wonder what their reaction was to the announcement this week that China’s National Development and Reform Commission (NDRC), has raised jet fuel prices by 11%. The move will, according to analysts, cost Air China CNY490 million this year, and the country’s three main airlines a total of CNY1.98 billion (US$291 million).
I wonder if Air China’s finance department figured this extra half-a-billion yuan into its costs when it predicted it would turn a profit this year. I imagine not.
The question they must be asking the NDRC is “why?” Why pump so much money into rescuing the airlines, and then stick more costs on them? I’m sure there are solid economic reasons - including keeping the state’s jet fuel producer - Sinopec - profitable. After all, who am I to argue with the Chinese government’s economic policy? But for the airlines this will come as another blow, just as that glimmer of light at the end of the tunnel was getting tantalisingly brighter.
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