Fuel costs hit Air China shares

Air China shares have hit turbulence

Shares in China's flag carrier airline, Air China, have stalled in its initial foray on the Shanghai stock market.

High fuel prices undermined the value of the launch, and shares ended the day unchanged from the initial public offering (IPO) price of 2.80 yuan.

Most IPOs see early gains of 50% to 80% in China's booming economy.

Air China raised 4.6bn yuan ($575m) in its flotation earlier this month and plans to use the proceeds from the share issue to buy new jets.

Growth in doubt

Other Chinese airlines have run into flak over fuel costs.

China Southern Airlines, the carrier with the most aircraft, reported a 835m yuan ($105m) first-half loss. This came after last week's 163m yuan ($20m) loss from Shanghai Airlines.

Air China had already cut the number of shares it issued by 40%. It was the first time a Chinese IPO had been scaled down, reflecting worries that the Shanghai exchange was in danger of being flooded by new stock.

The high cost of fuel raises doubts over plans for the dramatic expansion of China's airline industry.

China plans to spend 140bn yuan ($17bn) on airport construction over the next five years and predicts that its fleet of airliners will grow from fewer than 900 jets to 1,580 by 2010.

Air China hoped that a healthy performance by its shares would assist its part in this expansion. The airline hopes to increase its fleet by 20 Airbus and 25 Boeing jets.

Air China is state-owned and its parent company, China National Aviation Holding, is committed to supporting the shares with a buy-up if they fall below the IPO price before the end of this year.