China’s Big Three Airlines Face 7.3 Billion Yuan in H1 Losses on Fuel Costs

China’s three largest state-owned airlines — Air China, China Eastern, and China Southern — are projected to report combined net losses of at least 7.3 billion yuan (approximately $1 billion) for the first half of 2026, driven by a sharp surge in aviation fuel prices triggered by geopolitical conflict in the Middle East, according to The Paper.

The Scale of the Losses

The three carriers released their H1 2026 performance forecasts on July 14, with the combined loss range reaching 7.373 billion to 8.973 billion yuan — a 55% to 88% increase from the 4.77 billion yuan loss recorded in the same period last year. China Southern was hit hardest, forecasting losses of 3.473 billion to 3.973 billion yuan, a staggering 127% to 160% year-on-year increase. Air China expects losses of 2.1 billion to 2.6 billion yuan, while China Eastern projects 1.8 billion to 2.4 billion yuan in losses.

As CLS (Cailian She) reported, the losses represent a dramatic reversal from the first quarter, when all three airlines were profitable. Air China posted a net profit of 1.714 billion yuan in Q1, China Eastern earned 1.633 billion yuan, and China Southern recorded 1.481 billion yuan. The second quarter, however, saw deep losses across the board as fuel costs spiraled.

The Fuel Price Shock

Aviation fuel prices, which typically account for 30% to 35% of operating costs for Chinese carriers, rose to 35% to 40% during the crisis. According to Xinhua Finance, domestic aviation fuel ex-factory prices averaged approximately 5,450 yuan per ton in January and February before the Middle East conflict intensified in March. By April 1, prices had jumped 74% to 93% month-on-month, reaching 9,742 to 9,782 yuan per ton. The CIF import price peaked at 11,525 yuan per ton in May.

Brent crude oil surged to approximately $115 per barrel during the crisis before retreating to $73.74 per barrel by June 24 — a decline of 37.7% from the peak. However, as of July 10, aviation kerosene still stood at $122.48 per barrel, 31.1% higher than on February 27.

Airlines Respond

All three carriers cited the Middle East conflict as the primary cause of their losses. Air China stated in its announcement that “the Middle East geopolitical conflict kept fuel prices high, severely squeezing airline profitability.” China Eastern noted that it “quickly established a high-oil-price task force” and implemented measures including optimizing flight schedules, improving fuel-efficient aircraft utilization, and cutting costs, but the fuel price surge still caused major cost increases.

China Southern described the situation as “enormous pressure on the entire industry” after March, when aviation kerosene prices began fluctuating sharply due to international geopolitical developments.

Broader Industry Impact

The pain extends beyond the Big Three. Private carrier Juneyao Airlines reported that its H1 profit declined 58% to 72%, with a Q2 loss of 231 million to 301 million yuan, according to its earnings预警. The China News Service reported that airlines moved to reduce the fuel surcharge on July 5 — lowering it from 120/170 yuan (the second-highest in history) to 50/100 yuan for domestic routes — offering some relief to passengers.

Demand Remains Strong

Despite the cost pressures, demand for air travel in China remains robust. H1 passenger traffic reached 375 million trips, up 1% year-on-year and 16.7% above 2019 levels. The average load factor hit 85.6%, up 1.4 percentage points year-on-year, while average domestic fares rose 8.7% to approximately 808 yuan.

Outlook

The China Air Transport Association has called for the industry to focus on stabilizing revenue, cultivating markets, and controlling costs. With Brent crude having retreated significantly from its highs and the summer travel season approaching, there are signs of relief. However, structural challenges remain, including a global aircraft delivery backlog of over 17,000 units (60% of active fleet capacity), extended delivery cycles from four to six years, and 983 Chinese aircraft (23% of the fleet) aged over 13 years facing retirement.

As Securities Daily reported earlier this year, experts have warned that rising oil prices directly increase fuel procurement expenditure and compress profit margins. The situation has proven those warnings prescient, as China’s aviation sector — which had only just returned to profitability in Q1 2026 — now faces renewed financial headwinds from forces beyond its control.