Frugality expected to dent earnings of country's major carriers in short term
China plans to prohibit full-price air tickets during government travel as part of the ongoing frugality campaign, a move experts believe could put more pressure on the country's major airlines.
The Ministry of Finance and the Civil Aviation Administration of China said in a joint notice on Tuesday that air flights of government personnel traveling on official business should be booked under the principle of frugality and should support domestic airlines.
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Additionally, government personnel who travel overseas must choose flights from domestic airlines, the notice said. If there are no direct flights available, they must take a domestic flight to a nearby location and then transfer to a foreign airline.
Air tickets for government travel should be booked primarily at designated airlines that have been decided upon through the process of government procurement, the notice said.
Airlines should give discounts on the tickets as stated in the contract during the procurement process, it said. According to the notice, airlines should give an additional 5 percent discount for discount tickets and a discount of either 12 percent or 15 percent for full-price tickets.
Despite the authorities' stated intention to boost the development of domestic airlines, the new regulation could be another blow to major domestic airlines in the short term, an analyst said.
"It could reduce the net profits of domestic airlines because the profit margins brought about by full-price tickets in government travel is very important to their revenue structure," said Li Lei, a civil aviation analyst with China Minzu Securities Co.
Li said the authorities' measure could also help drag down the price of air tickets and put renewed pressure on airlines, adding that the government frugality campaign has significantly reduced air travel by government personnel.
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