China's three largest airlines raised ticket prices for premium passengers this month, confident that business travel is rebounding in the world's second-largest aviation market.
The fare rises come on the heels of further industry deregulation allowing domestic carriers to determine their own first-class and business-class ticket prices on domestic routes.
"Many rising countries, such as China, have implemented stimulus plans and loose monetary policies to spur their economies, which boosted trade and business travel," said the Montreal-based International Air Transport Association, which has about 230 members.
In the first five months of the year, premium travel worldwide has grown by 10.8 percent as business confidence and world trade recover, the association said in its latest monthly report.
In May, premium travel was up 18.7 percent from a year earlier, compared with a 10.2 percent rise in economy-class travel. The May increase followed a limp 1.1 percent gain in premium travel in April, the transport association said.
Routes linking to Asia and the North and Mid-Pacific regions showed growth rates of more than 20 percent in May.
Taking advantage of the rising demand, China Southern Airlines, China Eastern Airlines and Air China all raised prices of first-class and business-class seats on popular routes, such as Beijing to Shanghai.
They set first-class fares as high as 2.8 times full-fare economy prices and business-class price at as high as 2 times. Previously, first-class fares were set at a multiple of about 1.5 times.
Even with the changes, the premium fares are still relatively low.
"Overseas rivals set their premium ticket price at about 10 times an economy ticket," said Li Lifang, an analyst at Sinolink Securities Co.
Many business travelers, whose fares are paid by their companies, prefer the comfort, flight schedules and services of premium seats.
"The domestic aviation market is booming this year. Flights on some unpopular routes have been fully booked, let alone hot routes such as Beijing-Shanghai, so premium cabins are much more sought after than before," said an official from a domestic carrier, who asked to remain anonymous.
Some smaller carriers, such as Shenzhen Airlines and Shandong Airlines, followed their state-owned rivals in raising premium ticket rates.
The higher fares for such luxuries aren't expected to trigger a price war among airlines.
"We don't change airlines if they raise ticket prices," said an administrative official, surnamed Yuan, who is in charge of booking flights for staff at a financial institution in Shanghai.
"It seems that our boss isn't concerned about the extra cost."
The load factor in the premium classes of China's domestic carriers grew to about 50 percent last year from 15 percent in 2006.
Normally, premium fares account for 10 percent of total passengers but contribute 30 percent of revenue. But for domestic carriers, premium passengers contribute only 10 percent of revenue.
"If Air China and China Southern raise their first-class ticket prices by 20 percent, their revenues are estimated to grow by 500 million yuan (US$73.7 million) annually," Li said.
In the first half of this year, profits in China's aviation industry soared 174 percent from a year earlier to 13.3 billion yuan, according to the Civil Aviation Administration of China.
However, airlines now can also choose to reduce ticket prices in the off-season and on unpopular routes.
A marketing official at China Eastern also said the carrier will adjust fares to reflect demand.
"We also offer some discounts for premium passengers," said Zhou Enyong, marketing manager of Air China. "The flexible-pricing mechanism allows us to diversify our options for passengers and help us increase efficiency."
The market-oriented pricing mechanism is also expected to propel domestic carriers to improve in-flight services to compete with their overseas rivals.
