By Jin Jing (China Daily)
Updated: 2007-11-02 15:08

Airline stocks plunge following last week's sharp surge in global oil prices.

At noon, Air China plunged 5.85 percent to close at 19.79 yuan (US$2.65). Shanghai Airlines tumbled 6.59 percent to close at 13.9 yuan and China Eastern Airlines fell 4.82 percent to close at 13.83 yuan. The China Southern Airlines slid 6.71 to close at 20.16 yuan.

The benchmark Shanghai Composite index dropped 108.9 points to close at 5805.39. The smaller Shenzhen Composite Index fell 2.49 percent to close at 1392.36. The CSI 300 index also slid 1.9 percent to close at 5498.8.

Analysts the government decision to raise prices of diesel oil and aviation kerosene by 500 yuan per ton has squeezed airline profits.

According to a recent report by TX Investment Consulting Co Ltd, the hike in aviation kerosene will lower earnings per share of all airlines, based their consumption in 2006. The ratio at Air China is expected to lose 0.09 yuan, China Southern Airlines 0.265 yuan, China Eastern Airlines 0.2 yuan, and Shanghai Airlines 0.045 yuan.

"The oil prices rise dampened investors' expectations for airline profits growth, but since the expectation of renminbi appreciation and huge demand still exist, it will not negatively impact the companies’ fundamentals," said Zhang Xun, an analyst at TX Investment Consulting Co Ltd.