Chinese airline shares jump after State rules on fares eased

Chinese airline shares surged after the government gave airlines more freedom to set fares for domestic flights, easing state control over prices.

China removed the caps on full fares and airlines can decide on prices for routes as long as they are served by at least five carriers, according to a joint statement by the Civil Aviation Administration of China and the National Development and Reform Commission Friday. Any planned increments for fares should be within 10 percent, they said.

China Southern Airlines Co., the Guangzhou-based carrier that’s Asia’s largest by passenger numbers, jumped as much as 11 percent in Hong Kong trading to its highest intraday level in more than two years. The stock had doubled last year. State-owned rivals Air China Ltd. and China Eastern Airlines Co. both jumped as much as 10 percent.

China has been gradually liberalizing domestic flight fares over the past few years. The government sets the maximum fare for domestic flights, allowing airlines to sell at discounts. It has been removing such caps on certain routes, and giving airlines the freedom to raise price within a certain range.

Over the years, the liberalization measures have been extended to more domestic routes, especially those facing direct competition from high-speed rail. However, some of the most profitable routes, such as Beijing to Shanghai, have been subject to the government pricing caps until now.

The new rule allowing market-based pricing for domestic flights is the latest policy seen boosting Chinese carriers’ earnings after years of international expansion dented passenger yields, a key metric of profitability. In 2013, airlines had pricing freedom only over 31 routes and Friday’s decision extends that to more than 306. The CAAC had earlier pledged to have a market-based pricing mechanism in place for air tickets before 2020. Bloomberg