|  China has given its three main airlines China Southern, Air China and China Eastern the green light to levy fuel surcharges on domestic routes to ease the impact of international oil price rises.
The National Development and Reform Commission, which sets the jet fuel price, has raised it three times this year. The price has increased from 3,400 yuan (US$419) per ton early last year to its current 4,620 yuan (US$569) per ton.
The mainland's airlines have recorded a combined 340 million yuan (US$42 million) loss in the first five months of this year due to rising fuel costs, according to the General Administration of Civil Aviation of China (CAAC).
Last week, the industrial regulator announced that from August 1 domestic airlines would be allowed to collect an extra 20 yuan (US$2.46) per passenger travelling less than 800 kilometres and 40 yuan (US$4.93) per passenger on longer flights.
It is certainly good news for the big three carriers, which had appealed to the CAAC to let them resume the collection of the fuel surcharge.
The fee was revoked in April last year as the aviation authorities encouraged more flexible pricing, meaning airlines could resort to price hikes instead of a surcharge to offset rising operational costs.
The surcharge will alleviate financial pressure on domestic airlines. The increase in operating costs as a result of surging fuel prices amounted to 3.54 billion yuan (US$436.5 million) in the first five months of this year.
But it has not set a positive precedent. Rising operational costs are to be borne by consumers.
This is a mentality patented for monopolized industries that will hamper domestic airlines as they face intense challenges from both foreign and domestic competitors.
China's aviation industry has moved forwards, welcoming both foreign and domestic operators. Three non-State airlines, Okay Airways, Spring Airlines and Eagle Alliance, have been given licences to operate.
Spring Airlines last week offered 13 low-priced tickets for the Nanchang to Shanghai route priced at 199 yuan (US$24) 70 per cent lower than the official price tag and even cheaper than a train sleeper ticket.
But the company said it would not continue its low price strategy because of pressure from traditional State airlines, which accused it of "disrupting aviation order." The bold statement sends a strong signal that fierce competition is about to begin following the debut of up and coming rivals.
Dumping increased costs on travellers shows domestic operators remain both uncompetitive and powerless to face challenges.
Admittedly fuel costs account for about 30 per cent of the big three carriers' operating costs. The rise in jet oil prices constitutes a substantial burden for those airlines. But in a market that fluctuates, businesses are constantly faced with uncertainties.
Oil prices may rise today, and labour costs may go up tomorrow. If airlines are not prepared for possible market changes and continue to rely on shifting extra costs to passengers, they will suffer as well as their customers.
The resumption of the fuel surcharge will damage consumer confidence and affect the long-term development of the sector, although there is unlikely to be an immediate slump in passenger numbers.
In a mature market, such a fee would be hard to implement. It would mean huge losses of passengers, who would flock to cheaper airlines.
What we should reflect on is what has made domestic airlines so sure they could get away with collecting the surcharge.
It is a monopoly or incomplete competition.
Facing up to consumer grievances, China has strived to open its aviation industry and adopt more flexible pricing regimes in recent years.
In April last year, the CAAC allowed domestic airlines to quote floating ticket prices so long as they do not break the ceiling of 25 per cent or the floor of 45 per cent set for fluctuation.
According to the latest regulation on industrial opening up, which will take effect from August 15, foreign and domestic investors will be encouraged to invest in areas such as cargo, airport construction, jet fuel sales and storage, airplane maintenance, catering and computer-based air-ticketing systems.
But before these promised changes materialize, the domestic aviation sector remains relatively closed to non-State investors. The first private flight took off as recently as in March.
Making things worse, the CAAC, for fear of seeing State assets lost, has strictly controlled the pricing of air tickets.
Unlike pricing control in developed economies, where the aviation authorities only set a price ceiling to benefit consumers, the CAAC sets a floor for any price fluctuation, which has prevented competitive airlines, possibly non-State airlines in the future, from adopting the most effective price strategy to grab market shares.
It is the monopoly of jet fuel imports that has led to its high price. The State, through the Civil Aviation Oil Corporation of China (CAOCC), has the ultimate say as to the amount of imports, domestic sales and the price at which the fuel is sold to domestic airlines. This lack of market forces has pushed up prices and hence the operational costs of airlines.
Domestic airlines do not have any bargaining leverage, having to meekly accept what the authorities set, without question. Prices quoted by CAOCC are 60 per cent higher than those in Japan.
Experts reveal that failure to utilize financial derivatives to hedge rising price risks is a contributing factor behind the high fuel prices.
Domestic companies have not been able to adopt the useful financial tool, but that is not all that is to blame.
Breaking the back of the monopoly and allowing in more investors both in flight operation and jet fuel sales is the solution to the problem of incomplete competition.
Consumers have to wait. But policy-makers should not.
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