Chinese airline shares jump on government plan to cut levies

Chinese airline shares surged after the government announced plans to slash infrastructure levies charged to the companies, a welcome relief for carriers battling oil-price volatility and currency fluctuations in one of the world’s biggest aviation markets. Air China rose as much as 12% in Hong Kong, while China Eastern jumped 20% and China Southern rose 15%. The State Council, China’s cabinet, said that it will cut the civil aviation development fund by half starting July 1, part of a raft of fees that Beijing is reducing to lower costs for businesses. That’s set to bring down annual costs at the airlines by hundreds of millions of dollars. “The cut will bring a considerable lift on the top three airlines’ earnings,” said Ivan Zhou, an analyst at Bank of China International Holdings. “A reduction by half, if applied for a whole year, can lead to an increase in full-year net income somewhere between 15 to 20% for these airlines.” The civil aviation development fund is charged to passengers and carriers for construction of airports and other aviation infrastructure. A reduction by half would see Air China, China Eastern and China Southern saving a combined 3.74b yuan based on their 2018 charges, according to estimates by Tianfeng Securities. Also driving optimism for airline stocks is tight seat supply, which is giving carriers a stronger case to increase fares amid rising air-travel demand. <br/>