China’s three largest state-owned airlines — Air China, China Eastern Airlines, and China Southern Airlines — have issued a cautious outlook for the year as soaring jet fuel prices, driven by geopolitical tensions, weigh heavily on the sector.
After briefly returning to profitability in the third quarter of 2025 due to strong summer travel demand, all three carriers slipped back into losses in the fourth quarter. Increased competition, excess domestic capacity, and pressure from China’s expanding high-speed rail network contributed to declining ticket prices despite rising passenger volumes.
Among the three, China Southern reported a quarterly loss of 1.3 billion yuan, while China Eastern and Air China posted losses of 3.7 billion yuan and 3.64 billion yuan respectively.
Airlines are increasingly looking to international routes as a growth driver, with all three reporting strong annual gains in international passenger traffic. However, geopolitical tensions also disrupted operations, including reduced capacity to Japan and increased refund costs.
Fuel costs remain a critical concern. Prior to the Iran conflict, the global aviation industry had projected strong profitability, but a sharp rise in oil prices has since put those expectations at risk. Fuel now represents a significant share of operating expenses, limiting airlines’ ability to maintain margins.
Only China Eastern actively hedged fuel prices, holding positions that could partially offset volatility. Still, analysts warn that rising fuel costs, combined with limited ability to pass increases onto consumers, could deepen losses in 2026 before a potential recovery in 2027.
Meanwhile, the airlines continue to expand fleets with deliveries of the COMAC C919, signaling long-term confidence despite near-term challenges.
