Jet fuel cost cut boosts carriers' share prices
Airline stocks rallied yesterday after Beijing cut jet fuel prices by 6 per cent, helping to ease the cost pressure on carriers.
Air China and China Southern Airlines surged more than 4 per cent to close at HK$4.93 and HK$3.47 respectively. China Eastern gained 3.6 per cent to HK$2.27, while Cathay Pacific rose 4.1 per cent to HK$12.48 as Singapore kerosene jet fuel prices dropped to a one-year low on May 31 to US$116.38 a barrel.
Cathay said last month its first-half result would be disappointing as oil prices hovered at high levels. It also planned to cut long-haul flights to Europe and North America because they were more vulnerable to high fuel costs.
Jet fuel costs are the largest single cost for airlines and account for nearly 40 per cent of total operating costs. Oil prices dropped about 15 per cent over the past month on fears that Greece will leave the European Union and trigger a ripple effect, escalating the current debt crisis in Europe.
Jet fuel supply on the mainland has been monopolised by state owned firms, with the price set every month by the government under a mechanism that links a basket of international oil prices.
Following the cut in jet fuel price to 7,509 yuan per tonne from 7,976 yuan, the aviation watchdog also ordered mainland carriers to cut fuel surcharges - the levy paid by passengers to partially offset higher fuel bills - by more than 10 per cent for domestic flights within five days.
The new surcharge for long-haul flights, 800 kilometres or above, will be 130 yuan, while the cost for short-haul flights will be 70 yuan.
'Although the cut in the fuel surcharge is deeper than that of fuel costs, in absolute terms the airlines could save more money after the adjustment,' said Kelvin Lau, transport analyst at Daiwa Capital Markets.
Domestic passenger growth softened for the third straight month to 5.8 per cent in April.
Air China's first-half net income in yuan. The airline expects better results following thejet fuel cost cut