Major Chinese airlines are moving fast to tackle the mounting pressure from escalating fuel prices and shrinking market demand.
China Southern Airlines and China Eastern Airlines said they plan to cut long-haul international flights to reduce costs.
Luo Zhuping, board secretary of China Eastern, said the company is considering cutting international flights but the reduction will be gradual.
"Besides the soaring fuel prices, a major pressure is from the declining domestic and international market demand arising from the weaker international economy," Luo told China Daily yesterday.
The occupancy rate in April fell 0.2 percent, 4.5 percent and 0.4 percent from last year for domestic, international and regional flights respectively.
China Southern Airlines said earlier this week that it will cut services on more than 20 international flights, including the ones to Los Angeles, Paris and Singapore.
Two other major airlines, Air China and Shanghai Airlines, yesterday said they had no plans to trim flights at the moment but will take other actions to reduce costs.
Air China's costs will rise by 300 million yuan if the price of fuel goes up by 100 yuan per ton. But Wang Kai, from the board secretary's office in Air China, said the company will not cut flights because of its high occupancy rate. Air China's occupancy rate for international flights was 74.8 percent in the first four months of this year, higher than China Eastern's 66 percent.
"Air China can cover around 70 percent of extra costs through aviation fuel hedging, fuel surcharge and internal fuel-saving measures," Wang said.
Wang Wanlong, spokesman for Shanghai Airlines, said the company isn't under much financial pressure from rising fuel prices because of its limited number of flights. Shanghai Airlines has less than 10 international flights, much less than 98 international routes China Eastern serves.
Deng Qingping, an analyst at Tebon Securities, said the Chinese airline market is expected to work through the market cooldown and revive around the Olympic Games in August as international flights for that period have mostly been booked out.
Ma Xiaoli, analyst at CITIC Securities, said in a latest report that mergers and acquisitions - now witnessed in overseas airline markets - are expected in China later this year.
A shares of Air China fell 0.23 percent and China Eastern shed 0.47 percent while Shanghai Airlines dropped 0.38 percent and China Southern Airlines slid 2.18 percent in yesterday's trading.
Source: China Daily