China Southern forecast to see huge savings from fuel price cut

China Southern Airlines will be the biggest winner from the drop in jet fuel prices, which were reduced by 1.3 per cent on Tuesday.

Beijing decided to cut the price of domestic jet fuel by 80 yuan (HK$89) per tonne to 6,100 yuan earlier this week. China Southern stands to benefit because it uses more domestic fuel than the other two major airlines, according to Huang Bin, the company secretary of Air China.

But when planes on international flights have to refuel overseas, they must pay international prices, which amount to 8,000 yuan per tonne.

China Southern consumes 80 per cent of its fuel for its comprehensive mainland network. It has fewer international flights. China Eastern Airlines and Air China use 70 per cent of their jet fuel for mainland flights.

'I think China Southern could save 230 million yuan in fuel bills,' said Martin Wong, a transport analyst with Guotai Junan Securities. 'The decline in costs will boost its net profit by 5 to 6 per cent.'

China Aviation Oil Holdings, the sole supplier of jet fuel oil on the mainland, cut its wholesale price amid a rise in crude oil prices. Crude oil has risen 53 per cent during the past year to more than US$100 per barrel.

Analysts said the company was following Beijing's thinking in its effort to curb the rise in a variety of product prices. But they said the measure was just temporary, since domestic fuel prices could not be isolated from the international market.

Shares in China Southern fell 2.92 per cent to HK$5.98 yesterday. China Eastern slid 0.5 per cent to HK$3.90, while Air China rose 2.78 per cent to HK$7.02 and Cathay Pacific Airways jumped 4.62 per cent to HK$16.32.

Analysts say the outlook for the industry is gloomy due to high fuel costs and a softening in passenger growth.

Net profit for the industry is expected at US$4.5 billion this year, according to the International Air Transport Association. This is down from a prediction of US$5 billion it made in December.

Biggest winner

China Southern stands to benefit the most because of its domestic network

The amount the airline might save after the 1.3 per cent cut in fuel prices, in yuan: 230m yuan