China’s three large state-owned airline companies all reported huge drops in yearly profit. All claimed weak global economies, higher fuel prices and lower gains in foreign currency. Though they quickly point to the slow recovery in the US as well as the situation in Europe, the single greatest expense for these companies is fuel prices. Ironically, it is another state-owned company model (the monopoly) that raises prices higher than what some analysts believe an “open market” would allow.
This type of story is very interesting to me, because we see two different types of state-owned enterprises in two different monopoly sectors, one of which has a huge advantage. How do other state-owned sectors interact in China?
2 Responses to Chinese Airlines
Aviation fuel remains a key cost driver for airlines world wide. With increased prices of Jet A fuel, it would be interesting to see how airlines in china mitigate these costs. Whether they rely on premium seating to offset increases in fuel, or they rely on long term fuel contracts? or a mixture of both?
So we have monopolies and oligopolies in China, but no antitrust actions. Instead all these companies buy influence via the Party nexus, but the energy sector can keep others from intruding. The hand of the state is nowhere to be seen – it’s “cowboy capitalism” at its finest, let those with the biggest, badest guns win. Or so a quick reading suggests.
However, is jet fuel sold at “world” prices? Yes, increases affect air transport. That however need not imply that the energy sector is gouging them, if what it was doing was underpricing energy with an effective subsidy to users (and hence poor conservation efforts by all). I don’t know a quick place to check, but I rather suspect that energy is “cheap” in China. If so, then the weight of urban and industrial interests (including taxi drivers and truckers!) outweighs other policy concerns. But this could be viewed as regulation, not state control of business, and one where the business sector is succeeding in getting fewer restrictions in place.
I have no data to help distinguish which of these two contrasting pictures better depicts the fuel price issue.