Key facts
- China's three largest airlines, China Southern, Air China, and China Eastern, anticipate larger net losses for the first half of the year.
- The primary reason for the increased losses is a surge in jet fuel prices, which have more than doubled due to the Middle East conflict.
- Fuel costs constitute a significant portion, 35-38%, of the operating expenses for these carriers.
- The ability to pass on increased costs through fuel surcharges is limited in China, with a typical lag and incomplete offset.
- Analysts forecast deeper losses for the major carriers in 2026, with a return to profitability expected in 2027.
China's three largest state-owned airlines, China Southern, Air China, and China Eastern, are bracing for deeper net losses in the first half of the year, largely attributed to escalating fuel prices stemming from the ongoing Middle East conflict. Singapore jet fuel prices have surged to approximately $175 per barrel in late February, more than double levels seen just months prior, a trend linked to a broader global energy price shock where Brent crude futures have risen over 50% since the war's escalation.
Fuel represents a substantial 35-38% of operating costs for these carriers. While fuel surcharges are implemented, the mechanism in China typically lags behind cost increases and does not fully compensate for them, directly impacting profitability. This financial pressure arrives at a critical juncture as the sector was attempting a recovery from the pandemic. Despite a strong passenger performance during the Spring Festival, the underlying financial recovery is now at risk.
HSBC analysts have revised their outlook, now anticipating deeper losses for the major carriers in 2026 before a potential return to profitability in 2027. This forecast reflects the significant challenge posed by higher energy prices. Nevertheless, the airlines are continuing with strategic international expansion, with China Eastern set to launch a new Shanghai Pudong-Zurich service. This indicates a balancing act between managing immediate cost pressures and investing in future growth and market share.