Subsidies to keep airlines aloft

The government's cash subsidies for domestic airlines that began on May 21 will continue till July 20 and will help the latter to hedge against declining passenger numbers due to the recent resurgence of local COVID-19 cases and rising fuel costs, industry experts said.

For passenger flights operated by domestic airlines, if the income does not cover the operational cost of a flight, the deficit will be covered by cash subsidies, and the highest subsidy will not exceed 24,000 yuan ($3,561) per hour, the Ministry of Finance and the Civil Aviation Administration of China said in a statement on Thursday.

When there are 4,500 or fewer domestic commercial flights operated daily, domestic carriers are expected to benefit from the financial support. Those flights do not include flights operated in Hong Kong, Macao and Taiwan, flights undertaking emergency transportation tasks, and flights operated by business jets, according to the statement.

"The subsidy is a direct and fast way to help carriers, especially medium-sized and small airlines, to alleviate their operational pressure and get through the difficult period," said Xiong Yanhua, director of the department of finance of the CAAC, during an online news conference in Beijing on Thursday.

"The allowance is expected to help maintain the stability of aviation logistics industrial chain and promote the growth of manufacturing and tourism sectors," she said.

The Ministry of Finance will provide 65 percent to 80 percent of the total funds. Local governments of departure cities of flights will fund the rest, and the portion varies for different regions, the statement said.

The policy has fueled an increase in domestic flight ticket prices. Between May 14 and May 20, the average price of a one-way domestic flight ticket was 603 yuan, excluding tax. Between May 21 and May 27, the average price climbed to 763 yuan, excluding tax, up 27 percent over the previous week, according to Trip.com Group, China's largest online travel agency.

Since the outbreak of COVID-19, the government has introduced various measures to support the air travel sector, including exempting the civil aviation development funds payable by airlines, and lowering the charging standard of different fees for domestic and foreign airlines. The latest policy marks the first cash subsidy directly given to airlines since the pandemic.

In February, the National Development and Reform Commission, along with other departments, released a guideline to promote the growth of the services sector. Among other things, the government provided specific financial subsidies, tax reliefs and financial credits for the aviation sector.

"The subsidy is expected to help ensure continuous smooth operation of domestic flights, and passengers will be able to choose different flights. It will also help guarantee the safety operation of domestic flights, and help ensure the basic income of crew members and boost their work status and skills," said Lin Zhijie, an aviation industry analyst and a columnist at Carnoc, a major civil aviation website in China.

Owing to the resurgence of COVID-19, the number of domestic passenger flights operated in the past few months slumped. During the May 16-22 week, the daily average number of passenger flights operated by domestic carriers was 4,635, down 63.4 percent year-on-year, according to Flight Master, an intelligent travel services platform in China.

In the first quarter, major domestic airlines reported significant losses. Air China suffered a loss of 8.9 billion yuan, higher than the annual net profits it gained each year between 2016 and 2019, when there was no pandemic.

In the first three months, China Southern reported a loss of 4.5 billion yuan. Shanghai-based Chinese budget carrier Spring Airlines reported a loss of 437 million yuan, which is close to its annual loss recorded in 2020.