China Law Insight : China Law Insight: China Commercial and Intellectual Property Lawyers and Attorneys, Full Service Law Firm: King & Wood

 The following are some salient facts in the lead up to this passenger fuel surcharge “hike”:

• On 25 October 2010, the National Development and Reform Commission (NDRC) issued a notice that the price of kerosene used in the aviation industry was to be increased.(2)
• The NDRC is the authority in charge of setting or adjusting the prices of vital commodities, including setting guidelines for prices and discount margins for entities in the civil aviation industry.
• The next day (i.e. 26 October 2010), Chinese airlines (such as those listed above) announced that they were raising passenger fuel surcharges for domestic flights.

Interestingly, the margin increase for these passenger fuel surcharges were identical: (3)

• for flights of 800KMs and below, the surcharge was increased from RMB20 per passenger to RMB40 per passenger (i.e. by 100%); and
• for flights above 800KMs, the surcharge was increased from RMB40 per passenger to RMB70 per passenger (i.e. by approximately 75%).

These large increases in surcharges have caused some controversy. According to the press, the NDRC had only increased the price of RP-3 kerosene (used by airlines) by only 3%.(4) Consumers have thus questioned the justification of the comparatively large price hikes.

In respect of the aviation industry, an entity known as the Civil Aviation Administration of China (CAAC) is responsible for recommending price adjustments to the NDRC. On 30 March 2010, both the NDRC and the CAAC published a notice to do with passenger fuel charges for domestic airlines. This notice specifies the formula in which each airline must use to calculate “maximum” fuel surcharge rates. The notice also states that each airline should use its own discretion to decide whether and when to collect fuel surcharges as well as the amount of these surcharges.

Thus far, as far as we are aware, no antitrust allegations have been made against the airlines in the press.

(1) See for instance the following press releases issued by the airlines: http://cnbusinessnews.com/chinese-airlines-to-raise-fuel-surcharges/; http://www.airchina.com.cn/cn/tripmanager/service_notice/booking_notice/10/107145.shtml;http://www.ceair.com/mu/main/gydh/ywks/201010/t20101027_21336.html；http://sc.travelsky.com/scet/DisplayNews.do?nid=201010261400465620；and http://www.xiamenair.com.cn/about_show.aspx?Id=817.
(2) See: http://www.ndrc.gov.cn/zcfb/zcfbtz/2010tz/t20101025_376815.htm
(3) See: http://www.china.com.cn/economic/txt/2010-10/27/content_21206853.htm
(4) Ibid.
 

 The following are some details of what has been alleged:

• several commercial banks have come together and agreed to raise various fees and charges to similar amounts (including bill printing fees, small account management fees and inter-bank ATM fees);
• it was alleged that this collusive conduct was facilitated by meetings hosted by the China Banking Association between 2005 and 2010.

It remains to be seen if the NDRC will formally launch an investigation into this issue. We note that currently the China Banking Regulatory Commission (CBRC) and the NDRC are putting together rules which would regulate the service fees of commercial banks (entitled “Interim Measures on the Administration of Service Fees of Commercial Banks) (service fee rules). These service fee rules, once enacted, will no doubt provide clearer guidance in relation to what conduct is permitted, both pursuant to the proposed rules as well as pursuant to the AML.

[1] Including in the Beijing Daily  and in the Global Times.