China’s three largest state-owned airlines suffered combined first-half losses of about 8.2 billion yuan ($1.22 billion) as a sharp increase in jet-fuel costs, weak domestic pricing and disrupted international travel weighed on profitability. Air China, China Eastern Airlines and China Southern Airlines have now reported losses for the seventh consecutive year, highlighting the continued financial fragility of China’s aviation industry even as passenger demand and international revenue recover.
The results mark a sharp reversal from the carriers’ combined 4.82 billion yuan profit in the first quarter, which benefited from strong Lunar New Year travel. Fuel expenses rose between 35% and 38% at each airline during the first half, while limited fuel hedging left them particularly exposed to the surge in oil prices associated with the Middle East conflict. The outlook has become more difficult after a weak summer travel season and widespread typhoon disruptions.
China’s Big Three Airlines Report ₹1.22 Billion Loss
The three carriers reported a combined first-half net loss of approximately 8.2 billion yuan, equivalent to about $1.22 billion at the exchange rate cited by Reuters.
The losses were considerably worse than the strong start to 2026 had suggested.
Their combined first-quarter profit of 4.82 billion yuan was largely supported by strong holiday demand, particularly around Chinese New Year. That momentum failed to carry through the second quarter as fuel costs increased and international travel routes faced disruption.
China Airlines H1 2026 Results
| Airline | H1 2026 Net Loss | H1 2025 Net Loss | Change |
|---|---|---|---|
| Air China | 2.3B yuan | 1.81B yuan | Loss widened |
| China Eastern | 2.2B yuan | 1.43B yuan | Loss widened |
| China Southern | 3.7B yuan | 1.53B yuan | Loss widened |
| Combined | ~8.2B yuan | ~4.77B yuan | Significant deterioration |
China Southern recorded the largest loss among the three, while China Eastern and Air China also saw their deficits widen substantially from a year earlier.
China Southern Recorded The Largest Loss
China Southern Airlines reported a first-half net loss of approximately 3.7 billion yuan, compared with a loss of 1.53 billion yuan during the same period in 2025.
Its revenue, however, increased by 9.7% year over year to around 91.65 billion yuan.
The contrast between rising revenue and worsening profitability demonstrates how rapidly higher operating costs have eaten into airline margins.
China Southern Performance
| Metric | H1 2025 | H1 2026 |
|---|---|---|
| Revenue | 83.65B yuan | 91.65B yuan |
| Net result | -1.53B yuan | -3.70B yuan |
| Revenue growth | — | ~9.7% |
| Loss increase | — | ~2.17B yuan |
The airline’s results show that higher passenger and international traffic revenue was insufficient to offset the increase in fuel and other costs.
Air China Loss Widens To 2.3 Billion Yuan
Flag carrier Air China reported a first-half net loss of approximately 2.3 billion yuan, compared with a loss of 1.81 billion yuan a year earlier.
The airline’s loss therefore widened despite revenue increasing by 10.5%.
The result highlights the difficult operating environment facing Chinese airlines, particularly when higher fuel expenses cannot be fully passed through to passengers through higher fares.
Air China Results
| Metric | H1 2025 | H1 2026 |
|---|---|---|
| Net loss | 1.81B yuan | 2.30B yuan |
| Revenue growth | — | +10.5% |
| Profitability | Loss | Larger loss |
| Main pressure | — | Fuel + weak pricing |
Air China has nevertheless indicated that it plans to expand international flying in the second half of 2026, particularly on European and North American routes.
China Eastern Reports 2.2 Billion Yuan Loss
China Eastern Airlines posted a first-half loss of approximately 2.2 billion yuan, compared with 1.43 billion yuan in the first half of 2025.
Revenue increased by approximately 11.1%, making China Eastern the fastest-growing of the three on the top line.
However, higher fuel expenses and disruptions to international routes continued to pressure profitability.
China Eastern Performance
| Metric | H1 2025 | H1 2026 |
|---|---|---|
| Net loss | 1.43B yuan | 2.20B yuan |
| Revenue growth | — | +11.1% |
| Loss trend | — | Worsened |
| Relative position | — | Better than peers on some operating measures |
Analysts said China Eastern performed relatively better operationally than its two major peers, helped by stronger international performance and comparatively better cost controls.
Fuel Costs Surge Up To 38%
The biggest immediate factor behind the losses was the increase in jet-fuel costs.
Fuel expenses rose by approximately 35% to 38% at all three airlines during the first half.
The surge followed a sharp rise in oil prices linked to the Middle East conflict.
Although fuel prices have since declined from their second-quarter peak, Reuters reported that they remain more than 50% above prewar levels.
Fuel Cost Impact
| Airline | H1 Fuel-Cost Increase |
|---|---|
| Air China | ~35-38% |
| China Eastern | ~35-38% |
| China Southern | ~35-38% |
| Industry effect | Severe margin pressure |
For airlines, fuel is one of the largest variable operating expenses, making sudden oil-price increases particularly damaging when ticket prices cannot rise by a similar amount.
Chinese Airlines Have Limited Fuel Hedging
Another problem is that China’s major airlines hedge relatively little of their fuel purchases compared with many airlines in Asia and Europe.
That means they remain more directly exposed to changes in crude oil and jet-fuel prices.
China Southern said in its filing that there was currently no effective means available to manage its exposure to jet-fuel price fluctuations.
Fuel Risk Exposure
Middle East conflict
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Higher crude oil prices
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Higher jet-fuel prices
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35-38% rise in airline
fuel expenses
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Higher operating costs
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Lower airline margins
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Larger net losses
Limited hedging has therefore amplified the impact of the oil shock.
Revenue Is Growing Despite The Losses
The financial results are not uniformly negative.
All three airlines recorded strong revenue growth during the first half.
Air China’s revenue rose 10.5%, China Eastern’s increased 11.1% and China Southern’s grew 9.7%.
The primary driver was stronger international travel demand.
Revenue Growth Vs Profit
| Airline | Revenue Growth | Net Result |
|---|---|---|
| Air China | +10.5% | -2.3B yuan |
| China Eastern | +11.1% | -2.2B yuan |
| China Southern | +9.7% | -3.7B yuan |
The divergence shows that the core problem is not simply a lack of passengers.
The airlines are generating more revenue but are unable to convert that revenue into profit because costs remain elevated and pricing power is limited.
International Travel Provides A Bright Spot
International routes performed better than domestic services during the first half.
European routes were particularly strong as some travelers avoided Middle Eastern hubs disrupted by the conflict.
This helped Chinese carriers increase international revenue even as the overall aviation environment remained difficult.
Air China has now said it plans to increase flights to Europe and North America during the second half of 2026 after international routes outperformed domestic services during the summer.
International Aviation Trends
| Factor | Impact |
|---|---|
| Europe demand | Strong |
| North America | Expansion planned |
| Middle East routes | Disrupted |
| Domestic routes | Weak pricing |
| International revenue | Growing |
| Overall profitability | Still under pressure |
The shift toward international routes could help carriers improve revenue, but increased capacity may eventually limit further fare increases.
Domestic Airlines Face Weak Pricing Power
China’s domestic aviation market remains a major problem.
Weak economic conditions have made passengers more sensitive to ticket prices.
At the same time, airlines face intense competition from high-speed rail and driving holidays.
That limits their ability to raise fares sufficiently to compensate for higher fuel costs.
Domestic Aviation Challenges
| Challenge | Effect |
|---|---|
| Weak consumer demand | Limits fare increases |
| High-speed rail | Competes on major routes |
| Driving holidays | Alternative to flying |
| Higher fuel prices | Raises costs |
| Limited pricing power | Compresses margins |
This creates a difficult equation: airlines need higher fares to recover costs, but raising fares too aggressively could reduce passenger demand.
China’s Aviation Market Is Still Growing
The country’s overall aviation market has not collapsed.
China’s civil aviation industry recorded a 1% increase in passenger traffic to 380 million passengers during the first half of 2026, according to the Civil Aviation Administration of China.
The problem is that passenger growth is not translating into sufficient profitability.
China’s H1 Aviation Market
| Indicator | H1 2026 |
|---|---|
| Passenger traffic | 380M |
| Year-over-year growth | ~1% |
| Big Three airline result | ~8.2B yuan loss |
| International demand | Stronger |
| Domestic pricing | Weak |
The numbers illustrate the difference between traffic recovery and financial recovery.
Summer Travel Failed To Provide A Profit Boost
The third quarter is typically the most profitable period for Chinese airlines because of summer travel demand.
But 2026’s summer season has so far provided little relief.
An unusually strong typhoon season disrupted flights during the peak travel period.
According to meteorological data cited by Reuters, 21 typhoons had formed in the northwestern Pacific and South China Sea by the end of August, nine more than the historical average for the period.
Chinese Passenger Traffic Could Fall 3.6%
Aviation data firm Flight Master projected that Chinese airlines would carry approximately 142 million passengers on domestic and international routes in July and August, representing a 3.6% year-over-year decline.
That would mark the first contraction during the peak summer period since 2022, when pandemic lockdowns severely restricted travel.
Summer Travel Outlook
| Indicator | July-August 2026 |
|---|---|
| Projected passengers | ~142M |
| Year-over-year change | -3.6% |
| Key disruption | Strong typhoon season |
| Historical significance | First peak-season contraction since 2022 |
The weak summer season has further reduced the chances of a strong third-quarter recovery.
HSBC Now Expects Full-Year Losses
The difficult first half and weak summer season have caused analysts to significantly downgrade their expectations.
HSBC now expects China’s three largest carriers to report combined losses of approximately 16.8 billion yuan for 2026.
That contrasts sharply with the market’s previous expectation of a combined 1.3 billion yuan profit.
2026 Profit Outlook
| Forecast | Combined Big Three |
|---|---|
| Earlier market expectation | +1.3B yuan |
| HSBC latest forecast | -16.8B yuan |
| Difference | ~18.1B yuan |
| H1 actual loss | ~8.2B yuan |
The downgrade indicates how quickly fuel prices and operating conditions have changed the sector’s financial outlook.
Airline Stocks Have Fallen Sharply
The financial deterioration has also affected airline shares.
Shanghai-listed shares of all three carriers have declined by at least 36% in 2026, according to Reuters.
None of the three companies declared an interim dividend.
Stock Market Performance
| Airline | 2026 Share Performance |
|---|---|
| Air China | Down at least 36% |
| China Eastern | Down at least 36% |
| China Southern | Down at least 36% |
| Interim dividends | None declared |
The stock declines indicate that investors are increasingly pricing in the possibility of prolonged losses.
China Eastern Performs Relatively Better
Among the three airlines, China Eastern appears to have held up comparatively better operationally.
DBS Group Research cited stronger international load factors, lower domestic exposure and relatively better cost controls.
However, geopolitical tensions affecting China-Japan flight capacity have also created challenges for the airline.
Relative Position
| Factor | China Eastern |
|---|---|
| International performance | Relatively strong |
| Load factors | Better |
| Cost controls | Relatively stronger |
| Domestic exposure | Lower than peers |
| Overall result | Still a large loss |
The comparison demonstrates that better operating performance alone may not be enough to overcome the sector-wide fuel shock.
Airlines Are Shifting More Capacity Overseas
The major carriers are responding to weak domestic economics by increasing international capacity.
This strategy makes sense because international demand is currently stronger and fares can be more attractive on certain routes.
But increasing capacity across the industry could eventually create excess supply.
DBS analysts warned that additional international capacity could limit future increases in international yields.
International Expansion Strategy
Weak domestic demand
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Limited fare increases
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Shift capacity overseas
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Stronger international demand
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Higher international revenue
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But...
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More industry capacity
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Potential yield pressure
The strategy therefore offers an opportunity but also carries a risk of creating another pricing problem.
COMAC C919 Fleet Expansion Continues
Despite the financial pressure, China’s major airlines continue to expand their fleets of domestically manufactured COMAC C919 aircraft.
China Eastern increased its C919 fleet to 17 aircraft after receiving three deliveries during the first half.
Air China and China Southern each operated 11 C919s, after taking two and three deliveries respectively.
C919 Fleet
| Airline | C919 Fleet | H1 2026 Deliveries |
|---|---|---|
| China Eastern | 17 | 3 |
| Air China | 11 | 2 |
| China Southern | 11 | 3 |
| Total | 39 | 8 |
The growing C919 presence is strategically important for China’s domestic aerospace industry.
China Eastern Cuts C919 Delivery Expectations
China Eastern has, however, revised its expected C919 deliveries downward.
The airline said it now expects to receive 13 fewer C919 aircraft than previously forecast between 2026 and 2028.
Air China maintained its earlier delivery forecast, while China Southern did not provide a forecast in its interim report.
The adjustment suggests that airlines are also being cautious about fleet expansion amid uncertain demand and profitability.
Domestic Aircraft Could Help Long-Term Costs
The increased use of domestically manufactured C919 aircraft is part of China’s longer-term effort to build an independent commercial aviation ecosystem.
For airlines, the C919 could eventually provide an alternative to Airbus and Boeing aircraft for certain narrow-body routes.
However, the immediate financial pressure facing the carriers is being driven primarily by fuel prices, passenger yields and demand rather than the origin of their aircraft.
The Post-Pandemic Recovery Remains Incomplete
The latest results demonstrate that China’s aviation sector has not fully returned to a stable post-pandemic profit cycle.
Passenger numbers have recovered, international travel is expanding and airline revenues are growing.
Yet the combination of high fuel costs, weak domestic pricing and external disruptions continues to prevent sustained profitability.
Passenger recovery
+
International growth
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Higher revenue
│
├── Higher fuel costs
├── Weak domestic fares
├── High-speed rail
├── Typhoon disruption
└── Geopolitical shocks
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Persistent airline losses
The seven consecutive years of first-half losses underline the structural nature of the problem.
The Bigger Picture
China’s three biggest airlines—Air China, China Eastern Airlines and China Southern Airlines—have entered another difficult year, reporting combined first-half losses of about 8.2 billion yuan despite revenue growth of roughly 10% across the group. The central problem has been a severe cost squeeze: jet-fuel expenses rose 35-38%, while weak domestic pricing prevented airlines from fully passing higher costs to passengers. Limited fuel hedging has made the carriers particularly vulnerable to oil-price volatility.
The results also show that China’s aviation recovery remains uneven. International travel, especially on European routes, has helped lift revenue, but domestic competition from high-speed rail and weak consumer demand continues to constrain fares. The summer season has added another setback, with typhoon disruptions and a projected 3.6% decline in passenger traffic during July and August. HSBC now expects the three airlines to lose around 16.8 billion yuan collectively in 2026, compared with an earlier market expectation of a 1.3 billion yuan profit.
Looking Ahead
The immediate focus for China’s airlines will be on controlling fuel exposure, improving international route economics and navigating the weak domestic market. Air China plans to increase flights to Europe and North America in the second half, reflecting stronger international performance during the summer. However, if all three major carriers add significant international capacity, competition could eventually limit fare and yield improvements.
Longer term, the sector will also need to balance fleet expansion with uncertain demand. The growing C919 fleets demonstrate China’s push toward domestically produced commercial aircraft, but China Eastern’s decision to reduce expected C919 deliveries by 13 aircraft between 2026 and 2028 shows that airlines are becoming more cautious. Until fuel prices stabilize, domestic pricing improves and passenger growth translates into stronger yields, China’s major carriers may continue to face a difficult path back to sustained profitability.
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