China’s largest airlines are entering the peak summer travel period under growing financial pressure after warning of significant first-half losses, raising concerns over whether carriers can manage rising fuel expenses while passenger demand continues to weaken.
Air China, China Eastern Airlines and China Southern Airlines said on Tuesday they expected combined first-half net losses of up to 9 billion yuan ($1.33 billion), marking a sharp reversal from their combined profit in the first quarter. The earlier improvement was supported by strong travel demand during the Lunar New Year holiday period.
The losses highlight a difficult challenge for China’s aviation industry. Airlines face rising operating costs as fuel prices remain elevated, but attempts to increase ticket prices risk further reducing demand. Keeping fares low, meanwhile, forces carriers to absorb higher expenses at a time when consumer spending remains under pressure.
Parash Jain, HSBC’s global head of transport and logistics research, said weaker economic conditions were changing Chinese consumer behaviour. He said a “negative wealth effect” was affecting travel decisions, with higher airfares making passengers more likely to avoid flying, particularly on shorter routes.
“The rising ticket prices are hurting demand and pushing people to use high-speed rail more for shorter distances,” Jain said. He also pointed to weather disruptions and a smaller number of school-age children as additional factors affecting summer travel demand, while identifying higher ticket prices as the biggest contributor to weaker passenger numbers.
HSBC analysts expect China’s three largest carriers to record combined losses of around 16.8 billion yuan in 2026, compared with current market expectations of a combined profit of 1.3 billion yuan.
Air China said in a stock exchange filing that increased fuel costs had “drastically squeezed” airline profit margins. Unlike many other Asian airlines, Chinese carriers use limited fuel hedging strategies, leaving them more exposed to increases in oil prices linked to the Iran conflict. Although jet fuel prices have declined from their second-quarter peak, they remain about 50% higher than before the conflict.
Bank of America analysts said in a note that continued weakness in demand would remain a major concern heading into the summer travel season because fuel price reductions were expected to take time to fully affect airline costs.
The third quarter is traditionally the strongest period for Chinese airlines, driven by increased domestic and international travel. However, aviation data provider Flight Master expects passenger traffic on Chinese domestic and international routes to fall 3.6% year-on-year to 142 million passengers in July and August. If that forecast is accurate, it would represent the first contraction during the peak summer season since 2022.
Recent flight data points to continued weakness. Between July 1 and July 14, average daily flights declined 2.2% compared with the same period last year, with domestic flights falling 1.8% and international flights dropping 3.6%, according to Flight Master. Average economy-class fares stood at 831 yuan, down 1.2% year-on-year and 6.1% below 2019 levels.
China’s domestic passenger demand fell 6.2% in May compared with a year earlier, according to the International Air Transport Association. The decline was the weakest performance among major domestic aviation markets globally and marked the first monthly drop in China unrelated to the timing of the Lunar New Year since the pandemic period.
International routes have provided some support for the major carriers. Air China, China Eastern Airlines and China Southern Airlines receive about 30% of their revenue from international operations, and European routes experienced stronger demand after travellers avoided disrupted Middle Eastern aviation hubs following the Iran conflict.
However, those gains have begun to weaken as Gulf airlines restore services and introduce lower fares, according to Flight Master data. With the summer travel season underway, China’s largest airlines are now facing a combination of cost pressures and uncertain demand that could determine the industry’s financial performance for the rest of the year.
