Three major Chinese airlines have denied the rumor that the government will give them a total of 10 billion to 20 billion yuan (1.28 billion to 2.56 billion U.S. dollars) to ease their burden of heavy debt and high fuel costs.
"Air China has no knowledge of the capital injection, but if it's true, that would be great", Shanghai Securities News quoted Zheng Baoan, board secretary of Air China, as saying.
"Rising oil prices and aircraft purchases have imposed a heavy burden on the three major airlines - Air China, China Eastern and China Southern -- who applied for government subsidies but have received no reply", said an anonymous senior official with China Eastern.
Responding to recent conjectures that China Eastern and China Southern will be amalgamated, the official said the "triangular balance of power" between the three airlines would not come to an end in the short run because the government required each of them to "grow bigger and stronger".
Due to declining oil prices and the capital injection rumor, share prices of China Southern and Air China respectively surged 5.03 percent and 5.7 percent on Jan. 11 and China Eastern's stocks rose 8.58 percent on Jan. 12, according to the report.
"Airline stocks have received a lot of publicity because of the rumor", said Li Lei, an analyst with CITIC Securities.
The outlook for China's aviation industry has improved as jet fuel prices drop. Meanwhile, airline companies are still making passengers pay a surcharge to cover their fuel costs and the yuan is strong, he added.
Airline companies are enjoying lower operating costs, and Air China earned 800 million yuan in foreign exchange by paying for aircraft purchases in U.S. dollars, said Zheng.
For every 100 yuan per ton increase in oil prices in 2006, profits decreased 220 million yuan for China Eastern, 250 million yuan for China Southern and 180 million yuan for Air China, said Ma Xiaoli, analyst with CITIC Securities.
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