China's Civil Aviation Administration of China (CAAC) is taking steps to help turn around the country's airlines after last year's loss of over ´6 billion ($725 million).

Topping the list is a plan to merge China's 40 airlines into three to six groups. Liu Jianfeng, CAAC director, announced the plan in March, but has not revealed any details. His strategy appears to be to push consolidation from behind the scenes. Insiders give differing estimates on the ultimate number of airline groups that might result, but China's big three carriers - Air China, China Eastern and China Southern - are certain to form the core of three of the groups. China Northern, China Northwest, and China Southwest are other candidates. The CAAC has previously stressed the need for consolidation, but the directive for this plan seems to have come from Premier Zhu Rongji.

Beijing is also investigating air fare abuses, which it blames for much of last year's losses. A year ago the CAAC narrowed the range of lawful fares, but carriers scrambling to fill seats have found ways around those rules. The CAAC aims to end non-cash inducements, such as free hotel stays offered with air travel, and the override commissions that travel agents pass on to passengers.

The CAAC has also agreed to cut taxes on airline revenue. Its finance department rolled back last year's levy retroactively from 10% to 8% and says this year's rate will drop to 5%. The 2% levy on the revenue earned from international routes is unchanged.

Source: Airline Business