China’s three biggest airlines post heavy first-half losses as fuel shock bites

China's three major state-owned airlines reported significant first-half losses in 2026 due to soaring jet fuel prices, marking the seventh consecutive year of losses. Air China suffered a net loss of 2.3 billion yuan, China Eastern reported a 2.2 billion yuan loss, while China Southern incurred a 3.7 billion yuan loss. The airlines collectively faced a loss of 8.2 billion yuan for the first half, surpassing initial estimates of 9 billion yuan.

This downturn contrasts sharply with their combined first-quarter profit of 4.82 billion yuan, driven by strong Lunar New Year demand. Fuel costs surged by 35%-38% at each carrier, largely due to the Middle East conflict, leaving Chinese airlines with limited means to hedge against oil price fluctuations. Revenue growth was robust, with Air China up 10.5%, China Eastern 11.1%, and China Southern 9.7%, primarily boosted by international demand.

However, weaker economic conditions, competition from alternative travel options, and high fuel prices have constrained their ability to increase domestic fares substantially without dampening demand. Despite a recent decline in jet fuel prices, they remain over 50% above pre-war levels. Typhoon disruptions during the traditionally profitable summer season further exacerbated the airlines' financial woes, with 21 typhoons forming in the northwestern Pacific Ocean and South China Sea, surpassing the historical average.

Flight Master projects a 3.6% year-on-year decline in traffic for Chinese airlines in July and August, marking the first contraction in the peak season since 2022. HSBC analysts forecast the three carriers to incur combined losses of about 16.8 billion yuan in 2026, contrasting with the market's expectation of a profit of 1.3 billion yuan.

All three airlines have experienced a decline in their Shanghai-listed shares, with losses exceeding 36% in 2026, and none declared an interim dividend. The carriers, however, expanded their fleets of domestically produced COMAC jets, with China Eastern adding three narrow-body planes to its fleet and China Eastern and China Southern acquiring 11 C919s each.