China’s listed airlines failed to sustain their collective return to profitability in the first quarter, primarily as the Middle East conflict that began in March sent fuel prices sharply higher.
China Southern, Air China and China Eastern, the three major state-owned airlines, forecast a combined first-half net loss of RMB 7.37 billion (USD 1.09 billion) to RMB 8.97 billion (USD 1.33 billion). Given their combined profit of RMB 4.8 billion (USD 710 million) in the first quarter, the three carriers are estimated to have recorded a total loss of more than RMB 10 billion (USD 1.48 billion) in the second quarter.
In the first quarter of this year, listed Chinese airlines collectively returned to profit and recorded year-on-year earnings growth, boosted by falling jet fuel prices and favorable exchange gains.
The dramatic reversal in first-half performance stemmed from a sharp deterioration in earnings during the traditionally weaker second quarter, with skyrocketing fuel prices serving as the direct catalyst.
Shortly after the outbreak of the Middle East conflict in March, Cathay Group Chief Executive Ronald Lam said that the impact of the regional crisis on airlines was being felt primarily through fuel costs, with March fuel prices nearly tripling from the levels seen in January and February.
Jet fuel is the single largest cost item for airlines. Driven by a sharp surge in international crude oil prices, domestic jet fuel prices also rose significantly year on year. The ex-factory jet fuel price in April surpassed the record high set in July 2022, while the May price was twice the level recorded in the same period of 2025.
Although oil prices eased slightly in June, they remained substantially higher than a year earlier and their pre-conflict levels earlier this year. In the same month, the International Air Transport Association (IATA) sharply downgraded its full-year profit outlook for the global aviation industry. Average oil prices in the second quarter soared 90% year on year.
Many European airlines use substantial fuel-hedging programs to lock in prices and limit their exposure to fuel-cost increases. In contrast, Chinese airlines hedge only a small proportion of their actual fuel consumption. As a result, carriers with larger fleets and more extensive flight operations are more exposed to rising fuel prices, which was also a key reason why the three major state-owned airlines performed worse than their privately owned counterparts in the first half of the year.
