China's National Aviation Fuel Holding (CNAF), the country's near-monopoly jet fuel distributor, is set to charge domestic airlines about 15 percent more from July 1, an industry executive said on Monday.
The expected 900 yuan ($131) per ton hike, pending final government approval as soon as later on Monday, follows a surprise increase in ex-refinery jet fuel prices of 1,500 yuan per ton from June 20.
The adjustment, once in a quarter and under a mechanism in place from July 2006 that takes into account import costs, has in most of the last two years shielded Chinese airlines from soaring global oil prices.
The increase, the biggest quarterly rise in the last two years, is set to dampen profits of airlines like China Eastern Airlines and China Southern Airlines .
They have already asked the government to raise fuel surcharges to help cover surging fuel costs.
"The price increase means more flight cuts, or use of more smaller aircraft to cut fuel use," said the industry executive familar with CNAF's operations.
China imports roughly a third of its jet fuel consumption. Most of the imports are under a tax-bond scheme -- exempted from import duty -- and are marketed to foreign airlines.
Ex-refinery prices -- rates at which refineries sell to CNAF -- are regulated by Beijing in a way similar to those of gasoline and diesel.
CNAF is the parent of Singapore-based China Aviation Oil.