According to sources with the General Administration of Civil Aviation of China (CAAC), an increase in the oil tax is needed to compensate for the extra operational costs being faced by airlines in the wake of skyrocketing international oil prices.

The money netted by the oil tax will be distributed to domestic airlines.

Passengers who book and pay for a ticket before tomorrow will not be hit with the extra tax but all others can expect to pay more, the sources said.

China added a 15 per cent fuel tax on tickets in late 2000 as a measure to ease the mounting pressure on airlines. The CAAC reduced the tax to 8 per cent earlier this year as international fuel prices moved downwards.

"In fact, we only added a 6 per cent fuel tax on air tickets this time, considering the existing 8 per cent fuel tax was in effect," a CAAC source said.

A normal air ticket from Beijing to Shanghai now costs 970 yuan (US$117). It will rise by 50 yuan (US$6) from tomorrow.

The CAAC sources refused to estimate future movements in China's oil tax but confirmed it would continue to be amended in line with international oil prices.

CAAC believes that the under-developed domestic aviation industry needs protection and the extra fuel charges will reduce the pressure on deficit-plagued airlines.

But newly appointed CAAC Minister Yang Yuanyuan made it clear recently that ticket prices would not always be influenced by his administration. They would be gradually directed by market demand.

"It will be more flexible and market-oriented," Yang said.

Several of China's domestic airlines will soon merge into three groups based on Air China in Beijing, China Eastern Airlines in Shanghai and China Southern Airlines in Guangzhou.

(China Daily October 9, 2002)