Li Fenghua, vice-president of the China Eastern Airlines Group Co, said: "Our normal flights have been seriously affected since April, with the passenger occupancy rate dropping sharply to 20 percent."

The rate is normally between 80 and 90 percent.

The airline's monthly income was 31 percent lower last month than it was in March. "The situation is taking a turn for the worse," Li said.

Between May 1 and 15, for example, the passenger rate fell by 80 percent and the income was reduced to only 20 percent of that in the same period in March.

He said that at present, the airline is losing about 20 million yuan (US$2.4 million) a day.

Most aircraft used by China Eastern are being paid for in installments. The airline still has to pay even if the aircraft are not being used, he said.

Administrative expenditure has been reduced and staff salaries have been cut by 21 percent.

China Eastern is now relying on bank loans to get by and has signed a credit agreement with local banks, he said.

But the vice-president said he feels worried about the heavy financial burden, which will have an effect on the airline's financial structure.

Since May 1, the State has worked out some policies to exempt Chinese airlines from certain taxes for five months. "These policies will probably help the nation's airlines out of their dilemma," Li said.

Two other major Chinese airlines - Air China and China Southern Airlines - have also cut flights, reduced staff salaries and postponed the delivery of new aircraft.

China Southern may delay the delivery of 20 Boeing passenger planes and two cargo aircraft between now and 2005, while Air China is believed to have arranged for the delivery of eight new aircraft instead of 15.

Routes using Boeing 777s have either been cut or are now serviced by smaller aircraft.

Air China cancelled 2,100 flights in April due to the reduced number of passengers. Sources with the airline said more flights might be reduced this month if the poor passenger flow persists.

(China Daily May 21, 2003)