Key facts
- China's three largest state-owned airlines, Air China, China Eastern Airlines, and China Southern Airlines, reported combined first-half net losses of approximately 8.2 billion yuan ($1.22 billion).
- The losses were attributed to a severe increase in jet fuel prices, which rose 35%-38% for the carriers in the first half.
- Despite strong revenue growth driven by international demand, the airlines were unable to pass on costs due to weaker economic conditions and competition from high-speed rail.
- A strong typhoon season disrupted domestic travel during the peak summer period, further impacting profitability.
- Analysts predict the three airlines will post combined losses of around 16.8 billion yuan in 2026, with their shares already down significantly this year.
China's three largest state-owned airlines, Air China, China Eastern Airlines, and China Southern Airlines, have reported substantial net losses for the first half of the year, extending a streak of deficits to seven consecutive years. The combined losses amounted to approximately 8.2 billion yuan ($1.22 billion), a stark contrast to their first-quarter profit, which had been bolstered by strong Lunar New Year demand.
The primary driver for these losses was a significant surge in jet fuel prices, which rose between 35% and 38% for the carriers. This increase is linked to the ongoing conflict in the Middle East. Unlike many international competitors, Chinese airlines engage in minimal fuel hedging, leaving them highly exposed to oil price volatility. China Southern noted in its filing that there were currently "no effective means available" to manage this exposure.
Despite robust revenue growth, with Air China up 10.5%, China Eastern up 11.1%, and China Southern up 9.7%, driven by international travel demand, the airlines struggled to translate this into profits. They faced challenges in raising domestic fares due to weaker economic conditions and competition from high-speed rail, unlike the U.S. market. Jet fuel prices, though down from their second-quarter peak, remain over 50% higher than pre-war levels.
The third quarter, typically the most profitable, has also been challenging due to an unusually active typhoon season disrupting domestic routes during the peak summer travel period. Aviation data firm Flight Master projected a 3.6% year-on-year decrease in passenger traffic for July and August, marking the first contraction in this peak season since the pandemic lockdowns of 2022.
Hebank analysts anticipate that the three carriers will collectively lose around 16.8 billion yuan in 2026, a significant downward revision from previous expectations of a 1.3 billion yuan profit. The Shanghai-listed shares of all three airlines have fallen by at least 36% in 2026, reflecting the persistent pressure on their profit outlooks from weaker domestic travel demand. None of the airlines declared an interim dividend.
In fleet developments, the trio continued to expand their holdings of domestically manufactured COMAC jets. China Eastern received three C919 deliveries in the first half, bringing its fleet to 17. Air China and China Southern each operate 11 C919s, having taken two and three deliveries respectively. China Eastern expects 13 fewer C919 deliveries between 2026 and 2028 than previously forecast, while Air China maintained its forecast and China Southern did not disclose its outlook.