All three major Chinese airlines reported losses in the first half of the year: Air China posted a net loss of RMB 2.286 billion, China Eastern a net loss of RMB 2.179 billion, and China Southern a net loss of RMB 3.696 billion. Why?

When oil prices surged consecutively in June, domestic airlines previously resorted to canceling flights. At that time, we discussed—applying the principle of price elasticity of demand—that travel demand is not as inelastic as commonly assumed. Especially during the summer holiday period, much travel is tourism-oriented, and tourism is a classic discretionary consumption category; a portion of travel demand can vanish outright due to rising prices. Thus, under weak macroeconomic expectations, soaring oil prices did not translate into higher airline profits; instead, they eroded baseline passenger traffic. Data shows that in July 2026, domestic routes experienced a simultaneous decline in both load factor and economy-class base fare—a rare occurrence during the traditional peak season—clearly indicating that part of the demand had simply disappeared. Don’t blame it on typhoons: airlines began canceling dozens of flights scheduled for July and August as early as June—so where were the typhoons then? Plainly put, carriers had already anticipated a lackluster peak season in 2026 based on poor booking data, and proactively curtailed capacity to safeguard fares. Yet even this strategy failed to hold fares steady. Of course, large carriers can hedge jet fuel exposure via derivatives, but China’s three major airlines possess a certain uniqueness: as state-owned enterprises, they bear social responsibilities—including employment stability—and cannot readily resort to salary suspensions or layoffs like foreign carriers (though, as a last resort, they may eventually do so). This institutional specificity effectively offsets the benefits of crude oil hedging, resulting in an exceptionally high breakeven point for domestic airlines. Consequently, any contraction in demand easily triggers losses. So we can say: geopolitical tensions and high oil prices were merely the spark. The primary driver is weakening macroeconomic sentiment in China, which has heightened consumer price sensitivity—and expanded the cohort of price-sensitive consumers.

China Southern Airlines repaid RMB 6.3 billion in maturing debt, followed by a RMB 15 billion private placement. Can it withstand the shock of rising oil prices?

Its core business remains unprofitable. In the first half of the year, China Southern reported a net loss attributable to shareholders of RMB 3.696 billion, and a loss of RMB 4.71 billion after excluding non-recurring items. It had actually posted a profit of RMB 1.481 billion in Q1—but geopolitical developments from March onward drove up oil prices; in April, the ex-factory price of aviation fuel rose month-on-month by as much as 74%–93%, sharply increasing fuel costs and pushing the company into the red in Q2, with a single-quarter loss of RMB 5.177 billion. Source: Tuna Image Library The hardest cost item is aviation fuel. In the first half, China Southern’s fuel cost totaled RMB 34.886 billion, up 37.7% year-on-year and accounting for over 30% of operating costs. Its semi-annual report included a calculation: a 10% change in average fuel price translates into a RMB 3.489 billion change in operating costs. Capacity deployment timing is also dragging performance down. In H1, China Southern increased capacity by 4.05%, yet passenger-kilometers flown rose only 3.29%, and load factor declined by 0.62 percentage points to 84.85%. Peers are also losing money. In the first half of 2026, revenues for all three major carriers rose about 10%, yet profits collectively fell: Air China (601111.SH) lost RMB 2.286 billion, China Eastern (600115.SH) lost RMB 2.179 billion, and China Southern incurred the largest loss. Combined fuel costs for the three carriers totaled approximately RMB 96.817 billion—an increase of RMB 25.745 billion year-on-year—nearly offsetting their combined revenue growth of roughly RMB 24.3 billion. The crux of this cost surge is not flying more and burning more fuel, but paying significantly more for the same volume of fuel. Capacity deployment strategies also differ across the three: Air China and China Eastern increased capacity by just 1.75% and 1.74%, respectively, yet their load factors rose by 4.02 and 2.13 percentage points; China Southern deployed the most aggressive capacity expansion, generated the highest revenue—and suffered the biggest loss. Looking back at 2025, China Southern was the only one among the three to turn profitable: revenue reached RMB 182.256 billion, up 4.61% year-on-year, and net profit attributable to shareholders stood at RMB 857 million—the first annual profit since 2020. Three pillars supported this turnaround: (1) its majority-owned subsidiary, China Southern Logistics, contributed RMB 3.575 billion in net profit for the full year; (2) aircraft maintenance business saw rapid profit growth; and (3) international routes—international passenger capacity increased 18.46%, and international passenger-kilometers rose 19.57%. Yet profitability flipped from black to red within a year, revealing thin underlying fundamentals. The industry environment itself isn’t poor—but demand is no longer robust. In the first half of 2026, cross-border travelers grew 10.8%, yet civil aviation passenger volume rose only 1%, signaling a transition from post-pandemic recovery to moderate, sustainable growth. Airlines are capital-intensive, highly leveraged businesses; their debt stems mainly from aircraft procurement loans and finance leases. China Southern’s leverage ratio has been climbing over the past two years. As of end-June, its asset-liability ratio stood at 85.91%, up from 84.27% at end-2025; interest-bearing debt totaled RMB 254.766 billion, while shareholders’ equity attributable to shareholders amounted to only RMB 30.119 billion—a 15.35% decline from the beginning of the year; as of end-2025, accumulated unremedied losses totaled RMB 37.727 billion. The company possesses sufficient liquidity to service the RMB 13.6 billion in debt maturing this month. However, its core challenge lies in rebuilding capital strength: core operations remain acutely vulnerable to oil price shocks; the asset-liability ratio continues trending upward; and relying solely on operating profits to erase RMB 37.727 billion in accumulated unremedied losses remains a formidable task.

China's Top Three Airlines Face Full-Year Losses Amid Rising Fuel Costs

19 hours ago

China's three largest airlines project full-year losses driven by surging jet fuel prices and weak domestic fares, with Air China and China Eastern facing seventh consecutive annual deficits.

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China's Top Three Airlines Face Full-Year Losses Amid Rising Fuel Costs

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