June 5, 2018 / 3:53 AM / in a year

Chinese airlines apply fuel surcharge after three-year hiatus

FILE PHOTO: The logo of China Eastern Airlines is shown on a panel at a check-in counter at Hong Kong Airport in Hong Kong, China April 4, 2018. REUTERS/Bobby Yip

SHANGHAI (Reuters) - Chinese carriers including Air China (601111.SS) (0753.HK) and China Eastern Airlines Corp (600115.SS) (0670.HK) will apply a fuel surcharge to domestic routes from Tuesday, the first time they have done so in three years as oil prices begin to rise.

Air China said in a statement on its website on Monday that it would begin charging 10 yuan per leg from zero previously. China Eastern said the same, but added that children and disabled military personnel would be exempt.

Spring Airlines (601021.SS), Hainan Airlines (600221.SS) and Kunming Airlines also announced similar surcharges.

The same surcharge will apply to routes that are both less or more than 800 kilometers (497.1 miles) long, the airlines said. Previously, they applied different surcharges for different route lengths.

Chinese airlines scrapped fuel surcharges for domestic flights in 2015, after oil prices sank to six-year lows and pushed fuel purchase costs to below a government-set level.

But the companies do not hedge fuel buys like many of their oversees peers, which has left them vulnerable as oil prices begin to rise. Brent crude LCOc1 is trading just over $75 a barrel, up almost 50 percent from a year ago.

Air China’s 2017 profit fell short of analysts’ forecasts due to higher-than-expected operating expenses including that of fuel, costs for which it said jumped 29.2 percent to 6.42 billion yuan ($1 billion) over the year.

Airline executives meeting in Sydney this week said the industry’s profitability was being threatened by fuel costs that were rising much faster than ticket prices, prompting some to lock in fuel hedges, lower capacity and raise fares.

Reporting by Brenda Goh; Editing by Himani Sarkar

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