China Eastern Airlines

China Southern cuts executive pay 10pc to help save 1.3b yuan

PUBLISHED : Friday, 18 July, 2008, 12:00am
UPDATED : Friday, 18 July, 2008, 12:00am

China Southern Airlines, the world's fourth-largest airline by passenger numbers, will cut management salaries by 10 per cent as part of its plans to reduce costs by 1.3 billion yuan (HK$1.49 billion) this year amid rising fuel expenses and slowing demand.

Several hundred executives including chairman Liu Shaoyong would be affected, a China Southern spokesman said. The pay cut will take effect in the second half of this year.

'The payroll of the company can be trimmed down by not more than 100 million yuan,' said the spokesman.

To cope with increasing costs, airlines around the world have levied surcharges, imposed checked baggage fees, and reduced in-flight services.

Mainland airlines were cleared to raise fuel surcharges last month, but the move is not enough to offset the increase in jet fuel prices by the government.

China Southern, China Eastern Airlines and Air China, the mainland's big three carriers, have moved to reduce capacity on some international routes and to fly their planes at higher altitudes to save on fuel.

Daiwa Institute of Research transport analyst Kelvin Lau said: 'When these measures are not enough to combat soaring jet fuel costs, airlines will have to rely on more aggressive measures such as salary cuts.'

China Southern's pay cut is one of the first few measures imposed by a state-owned company prompted by an adverse operating environment. The move may encourage other state-owned firms to become more market-orientated.

The 1.3 billion yuan cost-cutting package includes an 800 million yuan reduction in infrastructure investment, as well as redeploying and optimising fleet capacity to save fuel.

The estimated total savings will almost match the 1.6 billion yuan in operating profit before exchange gain it reported for last year.

'It will set an example for other Chinese airlines such as Air China and China Eastern to follow,' said Mr Lau.

Boosted by falling oil prices, shares in China Southern rose 4.18 per cent to HK$3.24 yesterday while Air China surged 5.82 per cent to HK$4.18 and China Eastern climbed 3.13 per cent to HK$2.31.

Crude oil for August delivery gained as much as US$1.51 to US$136.11 per barrel in New York yesterday. Oil has tumbled more than US$11 from last week's record US$147.27.