China's proposals to ramp up the profitability of its second-tier airports could not have come at a worse time for the country's airlines, many of which are struggling to cope with higher fuel costs under a regulatory regime that restricts their ability to generate more revenue.
The General Administration for Civil Aviation of China (CAAC), the industry's governing body on the mainland, has been circulating a consultation paper which proposes to raise airport user charges for domestic flights next year by an average of 15 per cent.
If passed into law, the proposal could increase individual operating costs for China's main carriers by 'several hundred million' yuan per year, a senior executive from one of the mainland's Big Three airlines told Below Deck yesterday.
Given that two of those carriers - China Southern and China Eastern - have issued guidance to the market that their earnings for last year will fall at least 50 per cent despite enjoying robust growth in passenger ticket sales, the proposals are being viewed darkly in airline quarters.
All of China's airlines struggled last year to deflect a 45 per cent increase in the average cost of jet fuel, handcuffed as they were by state restrictions on how much they charge for domestic passenger fares, surcharges or even how much they can hedge their fuel bills.
The regulator's logic is simple and twofold: 85 per cent of China's airports are losing money because their user fees are set too low to recover the operating costs of running the facility; essentially any airport handling fewer than five million passengers a year is running at a deficit - and the regulator knows that has to stop.
Moreover, China has emerging obligations under its agreement with the World Trade Organisation not to discriminate between foreign and domestic airlines and that extends to airport user fees.