Key facts
- Air China, China Eastern Airlines, and China Southern Airlines expect combined first-half net losses of up to 9 billion yuan ($1.33 billion).
- Weakening demand and higher fuel costs are cited as primary reasons for the projected losses.
- Analysts predict a continued negative wealth effect and increased ticket prices are impacting consumer choices.
- HSBC analysts forecast combined losses of approximately 16.8 billion yuan for the three carriers in 2026.
- Projected traffic for Chinese airlines in July and August is expected to fall 3.6% year-on-year.
China's largest airlines are bracing for significant first-half losses as they enter the peak summer travel season, with analysts warning of a challenging outlook due to weakening consumer demand and escalating fuel costs.
Air China, China Eastern Airlines, and China Southern Airlines have all issued profit warnings, anticipating combined net losses of up to 9 billion yuan ($1.33 billion) for the first half of the year. This marks a stark reversal from their first-quarter performance, which had benefited from strong demand during the Lunar New Year.
The airlines face a dilemma: increasing ticket prices to offset higher fuel expenses risks further deterring passengers, while maintaining current fares means absorbing the additional costs. Parash Jain, HSBC's global head of transport and logistics research, highlighted a 'negative wealth effect' impacting Chinese consumer behavior amid slowing economic growth, suggesting that any fare increase could significantly reduce demand. He noted that while weather disruptions and fewer school-aged children traveling also play a role, rising ticket prices are the primary driver of weaker demand.
HSBC analysts project that the three major carriers could collectively lose around 16.8 billion yuan in 2026, a forecast that contrasts sharply with the current market expectation of a combined profit of 1.3 billion yuan. Air China specifically cited elevated fuel prices for "drastically squeez[ing]" profit margins. Unlike many international competitors, Chinese airlines typically engage in limited fuel hedging, leaving them more vulnerable to oil price surges, such as those triggered by the conflict in Iran. Although jet fuel prices have receded from their second-quarter highs, they remain approximately 50% above pre-conflict levels.
Bank of America analysts indicated that with jet fuel prices expected to normalize slowly, weak demand conditions are likely to persist through the summer peak season. Aviation data firm Flight Master forecasts a year-on-year decrease of 3.6% in traffic for Chinese airlines on domestic and international routes during July and August, which would represent the first contraction in peak season travel since 2022. Data from July 1 to 14 showed a 2.2% year-on-year decline in average daily flights, with domestic flights down 1.8% and international flights down 3.6%. The average economy class fare was 831 yuan, a 1.2% decrease from the previous year and 6.1% below 2019 levels.
The International Air Transport Association reported that China's domestic passenger demand fell by 6.2% in May compared to the previous year, marking the weakest performance among major domestic markets globally and the first monthly decline outside of the Lunar New Year period since the pandemic began. While the major airlines derive about 30% of their revenue from international routes, and have seen increased demand on European routes due to disruptions in Middle Eastern hubs, this trend is weakening as Gulf carriers resume services and offer more competitive fares, according to Flight Master data.