The Civil Aviation Administration of China has revised its jet fuel pricing system for domestic flights to move to a more market-oriented practice and allow prices to float more freely, said China Aviation Oil Corp.

The country's dominant aviation fuel marketing firm said in a Singapore stock exchange filing yesterday that the new system will allow airlines to negotiate prices for the fuel within an 8 percent range above or below a level to be set by the regulator. That means the regulator will end its pricing control on the jet fuel.

The revised system will take effect tomorrow.

For overseas-bound flights, including those to Hong Kong and Macau, the margin of aviation fuel will "gradually evolve into a completely market-based system in two years," the company said.

Domestic carriers hailed the news but said they don't expect much benefits from the new policy in the near term.

"We have been negotiating with China Aviation Oil for better prices on bulk purchase," said Luo Zhuping, board secretary of China Eastern Airlines. "But the new policy has made it clear that the domestic jet fuel market is going more market-oriented and will benefit airlines in the long run."

China on Sunday raised domestic ex-factory prices of fuel in a bid to help domestic refiners recoup losses as global crude rates surged to record levels last year and the market expects the prices to rise further.

The government is studying a pricing mechanism in a bid to better reflect the relation between the domestic oil product prices and global crude oil rates.

Among Sunday's adjustments, jet kerosene producer prices were raised some 6 percent to between 4,910 yuan (US$613) and 5,140 yuan per ton. Prices have risen more than 1,300 yuan a ton from a year earlier.

Meanwhile, for the first time since August, China will allow its airlines to raise fuel surcharges 50 percent, effective from April 10 to October 10, the National Development and Reform Commission and the regulator said yesterday.

For domestic flights on routes shorter than 800 kilometers, each passenger has to pay 30 yuan from the current 20 yuan. For longer distances, they have to pay 60 yuan from 30 yuan.

"The increased surcharges could help us earn more during peak seasons but in slow seasons we have to lower the fare and thus offset the surcharge gains," said Luo.

Since last year, Chinese carriers have been under intense pressure to turn a profit due to the high jet fuel costs.

(Shanghai Daily March 31, 2006)