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Air China, China Eastern Airlines and China Southern Airlines each detailed expectations of heavy losses in regulatory filings released Tuesday, forecasting a combined first-half net loss of as much as 9 billion yuan that contrasted sharply with the profit recorded in the first quarter when Lunar New Year travel lifted results. The warnings arrived as the carriers headed into the peak summer travel period, when the third quarter normally delivers the strongest earnings of the year. According to the filings, higher jet fuel expenses have drastically squeezed margins at a time when ticket price increases risk further eroding bookings.
The carriers’ disclosures highlighted limited fuel hedging that left them exposed to the oil price spike triggered by the Iran conflict, with jet fuel prices holding about 50 percent above pre-war levels even after easing from second-quarter peaks. Air China stated in its filing that elevated fuel prices had drastically squeezed airline profit margins. A Bank of America assessment found that weak demand conditions would likely remain the dominant concern heading into the summer peak season given the time required for jet fuel costs to normalise.
HSBC analysts expect the three carriers to record combined losses of about 16.8 billion yuan for the full year of 2026, a sharp departure from the current market consensus that points to a profit of 1.3 billion yuan. Parash Jain, HSBC’s global head of transport and logistics research, attributed much of the pressure to a negative wealth effect that is reshaping consumer habits amid slowing economic growth. Jain said the rising ticket prices are hurting demand and pushing people to use high-speed rail more for shorter distances, while noting that weather disruptions and a smaller pool of school-age children were also weighing on summer travel.
Flight Master data indicated that passenger traffic on domestic and international routes flown by Chinese airlines is projected to decline 3.6 percent year-on-year to 142 million in July and August, marking the first peak-season contraction since 2022. From July 1 to 14, average daily flights fell 2.2 percent from the previous year, with domestic services down 1.8 percent and international routes off 3.6 percent. Economy class fares averaged 831 yuan during that period, a 1.2 percent drop year-on-year and 6.1 percent below 2019 levels.
The International Air Transport Association reported that China’s domestic passenger demand contracted 6.2 percent in May from a year earlier, the weakest result among major global markets and the first monthly decline unrelated to Lunar New Year timing since the pandemic. The Civil Aviation Administration of China figures show the sector carried 770 million passengers in 2025, a 5.5 percent increase from the prior year, yet current trends point to softening momentum as capacity adjustments take hold. The International Air Transport Association separately projected that global airline net profits would halve to $23 billion in 2026 from $45 billion in 2025, driven by a $100 billion rise in collective fuel expenses linked to geopolitical tensions.
The three carriers, which derive roughly 30 percent of revenue from international routes, initially benefited from surging European demand as travellers avoided disrupted Middle Eastern hubs following the start of the Iran conflict. Flight Master data shows those gains are now eroding as Gulf carriers restore services and compete with lower fares. OAG capacity figures place total Chinese seat availability in July 2026 at 98.1 million, up 4.3 percent from the previous year, even as demand indicators weaken.
