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China’s “Big Three” Airlines Post Severe First-Half Losses Driven by Fuel Costs

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Air China, China Eastern Airlines, and China Southern Airlines have suffered major financial losses driven by surging jet fuel prices and sluggish domestic yields, while an unusually severe summer typhoon season continues to batter operations.

The three state-owned flag carriers of the People’s Republic of China reported a combined net loss of approximately 8.2 billion yuan (around USD 1.22 billion) for the first half of the year. The results mark the seventh consecutive year of H1 losses for the state transport group, sharply reversing first-quarter profits—where they achieved a combined net profit of 4.82 billion yuan fueled by Lunar New Year travel—and dragging down stock prices across both Shanghai and Hong Kong exchanges.

Losses by Airline

During H1, jet fuel operating expenses surged between 35% and 38% across all three carriers. Unlike international competitors in Asia and Europe, Chinese airlines maintain low-coverage or limited fuel hedging strategies. In a regulatory filing, China Southern Airlines noted that it currently lacks effective hedging instruments to mitigate exposure to crude oil volatility, with prices remaining more than 50% above pre-conflict levels.

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Operating Revenue and Passenger Traffic

Despite negative bottom-line results, top-line revenue remained in positive territory, bolstered by international demand:

European routes showed strong performance, driven by travelers avoiding Middle Eastern hubs disrupted by the ongoing armed conflict with Iran. Domestically, however, broader economic weakness and intense competition from high-speed rail (HSR) and road transport limited the carriers’ ability to raise yields without dampening local demand.

Operational Weather Disruptions

The third quarter, historically the highest operational margin period for Chinese commercial aviation, offers little financial relief due to an unusually severe typhoon season. Meteorological data shows 21 typhoons formed in the Northwest Pacific Ocean and the South China Sea year-to-date—nine more than the historical average for the period.

According to aviation data analytics firm Flight Master, projected passenger traffic for July and August is expected to drop 3.6% year-over-year to 142 million passengers across combined domestic and international routes. This decline marks the first peak-season contraction since 2022.

Market Outlook and COMAC Commercial Fleet Integration

Faced with sustained weakness in domestic demand and no interim dividends, Shanghai-listed shares for all three airline groups have fallen by at least 36% year-to-date in 2026. HSBC analysts project that Air China, China Eastern Airlines, and China Southern Airlines will close 2026 with a combined full-year loss of roughly 16.8 billion yuan, contrasting sharply with previous market consensus estimates of a 1.3 billion yuan combined profit.

Regarding fleet development, all three carriers reported continued deliveries of narrowbody aircraft manufactured domestically by the Commercial Aircraft Corporation of China (COMAC):

The outlook for China’s state commercial aviation sector remains closely tied to global crude oil price trends, the resolution of global aerospace supply chain bottlenecks, and the industry’s ability to retain passenger market share against high-speed ground transport infrastructure.

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