If wondering about why the airline industry is penny pinching and increasing fees, just look at China's three major state-owned airlines who have all posted steep drops in annual profit because of the weak global economy, higher jet fuel prices and smaller foreign currency gains.
For the biggest of the three, China Southern, profit plunged by half compared with the previous year, while rivals Air China and China Eastern reported that earnings tumbled by about a third.
"Demand in the aviation industry in 2012 continued to be weak as a result of the slow recovery of the U.S. economy, the on-going European debt crisis and the global recession," Beijing-based Air China said. "Escalating operating costs from high jet fuel price and the intensifying competition added to the challenges faced by the industry," reported USA Today.
In fact, according to China Eastern, " the average price of fuel rose 2 percent. The Shanghai-based carrier reported that profit fell 35 percent to 2.95 billion yuan," stated USA Today.
This is a gigantic issue to deal with because fuel is the largest expense for the airlines.
The reason for the dilemma is that fuel for domestic flights is supplied by a state-owned monopoly, which marks up prices "higher than an otherwise open market would allow," Barclays analyst Patrick Xu wrote in a report, according to USA Today.
"Chinese carriers also don't typically use hedging contracts to lock in part of their fuel bill, like other airlines do, because they lost a lot of money in 2008 using such techniques, Xu added, reported USA Today.
"China Southern carried 86.5 million passengers last year, or 7.2 percent more than 2011, but earnings fell by half to 2.6 billion yuan. The airline warned that 'demand for short and mid-distance aviation will be further suppressed' as China rapidly expands its high speed rail network. Authorities plan to expand the network to 18,000 kilometers (11,120 miles) by 2015, about double the 9,300 km currently," reported Associated Press.
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