In the first half of 2026, the three major Chinese airlines delivered a report card of "increased volume but decreased profits." As of August 31, Air China reported a loss of 2.286 billion yuan, China Eastern Airlines a loss of 2.179 billion yuan, and China Southern Airlines a loss of 3.696 billion yuan. In fact, in the first quarter of this year, all seven listed airlines in China achieved profitability, with the three major airlines showing a strong turnaround from losses year-on-year. In the first half of the year, the revenue of the three major airlines steadily increased year-on-year, and the revenue per passenger kilometer also improved significantly. However, in the second quarter, affected by the international situation, jet fuel prices rose, and the losses of the three major airlines all widened year-on-year, with China Eastern Airlines incurring the smallest loss and China Southern Airlines the largest. The three major airlines further improved revenue and strengthened refined management by launching new international routes, increasing their market share in Asia-Europe transit, and attracting high-net-worth passengers. In the second half of the year, oil prices will remain a key factor affecting the performance of the three major airlines. Facing the challenges, the three major airlines will improve their operating efficiency by increasing the number of flights to Europe and North America and continuing to promote "direct flights and reduced agency flights."

Oil prices "eat up" profits

The path to profitability for the three major airlines in the first half of this year was not smooth.

Financial reports show that the operating revenue and passenger kilometer revenue of the three major airlines all achieved steady year-on-year growth in the first half of the year. Air China's operating revenue increased by 10.54% year-on-year, China Eastern Airlines' operating revenue increased by 11.09% year-on-year, and China Southern Airlines' operating revenue increased by 9.72% year-on-year.

Air China's revenue per passenger kilometer increased by 2.74% year-on-year. This increase was attributed to increased capacity deployment (RMB 1.278 billion), higher load factors (RMB 3.713 billion), and improved profitability (RMB 2.143 billion). China Eastern Airlines' revenue per passenger kilometer increased by 5.74% year-on-year. China Southern Airlines' revenue per chargeable passenger kilometer increased by 6.52% year-on-year.

Han Tao, an expert from the China Civil Aviation New Think Tank, believes that the revenue growth rate of the three major airlines is significantly higher than the growth rate of passenger traffic in the civil aviation industry, indicating that the growth has shifted from a simple rebound in traffic volume to the optimization of route structure, ticket price management, and premium pricing of international routes.

Looking at the quarterly figures, the civil aviation industry had a strong start in the first quarter, with all seven listed airlines in China turning a profit. The three major airlines turned a strong turnaround from losses year-on-year, with net profits of RMB 1.714 billion for Air China, RMB 1.633 billion for China Eastern Airlines, and RMB 1.481 billion for China Southern Airlines.

However, the strong profitability of the first quarter failed to carry over into the second quarter. Affected by the international situation, jet fuel prices continued to rise, leading to increased losses for the three major airlines operating larger fleets and more routes. In the second quarter alone, Air China lost 4 billion yuan, China Eastern Airlines lost 3.812 billion yuan, and China Southern Airlines lost 5.177 billion yuan.

Jet fuel costs have always been the largest component of airline operating costs. Significant fluctuations in international oil prices can easily impact an airline's performance. Han Wensheng, Vice Chairman and General Manager of China Southern Airlines, disclosed at the 2026 interim results briefing that the company's operations in the second quarter were mainly affected by geopolitical conflicts, with oil prices surging by nearly 90% year-on-year.

Data from the International Air Transport Association (IATA) also shows that fuel costs are projected to rise from $252 billion in 2025 to $350 billion in 2026, an increase of nearly 40%. IATA Director General Willie Walsh stated that the rapid surge in aviation fuel prices by 70% is impacting the profitability of all airlines.

Dragged down by losses in the second quarter, the overall performance of the three major airlines turned from profit to loss in the first half of the year: Air China lost 2.286 billion yuan, China Eastern Airlines lost 2.179 billion yuan, and China Southern Airlines lost 3.696 billion yuan. In terms of the magnitude of the losses, China Eastern Airlines lost the least, followed by Air China, and China Southern Airlines lost the most.

Control costs, expand markets, and attract high-end customers

Faced with the pressure of fuel costs, the three major airlines took proactive measures in the first half of the year, carefully cutting costs on the one hand and expanding channels to increase revenue on the other. Multiple operational data reflect the efforts of the three major airlines.

Taking China Eastern Airlines, which suffered the least losses, as an example, in the face of the challenge of high oil prices, China Eastern established a special team to deal with high oil prices and saved fuel costs through measures such as carrying fuel with the difference in price, pre-refueling flights, and reasonably reducing low-yield routes; it continued to reduce financing costs, issued eight tranches of ultra-short-term bonds, with a total financing amount of 21 billion yuan, and made full use of various national financing preferential policies, reducing interest expenses by 336 million yuan in the first half of the year.

In terms of expanding revenue streams, the three major airlines are seizing opportunities in the international market and broadening their sources of income.

In the first half of the year, Air China's international passenger revenue increased by 18.07% year-on-year, China Eastern's international and regional main business revenue increased by 23.29% year-on-year, and China Southern's international passenger revenue increased by 27.49% year-on-year. Specifically, Air China actively expanded its "Belt and Road" international routes, opening or resuming 7 new international routes and increasing its market share in the Asia-Europe transit market; China Eastern opened 14 new international routes, resumed 4, and increased the frequency of 5, focusing on increasing the frequency of intercontinental trunk routes from Shanghai Pudong to Geneva, Venice, Barcelona, Frankfurt, and other destinations.

Yu Zhanfu, Vice President of Zhongda Consulting and Head of Transportation, Logistics and Tourism Industry, analyzed that international routes are the main engine of this round of growth, and the contraction in supply has to some extent boosted the profitability of international routes. Restricted airspace in the Middle East and the suspension and rerouting of foreign airlines have objectively reduced the effective supply in the Asia-Europe market. Chinese airlines have gained market share and higher prices in Europe by leveraging their direct flight advantages in Russian airspace.

In its efforts to attract high-net-worth passengers and boost revenue in business and first class, Air China launched a new Gold and Silver Card challenge, optimized its business travel zone products, and continued to innovate its digital assets. China Eastern optimized its cabin structure, increasing the proportion of mid-to-high-class cabins. Excluding fuel surcharges, China Eastern's revenue per seat kilometer increased by 4.24% year-on-year in the first half of the year, with business and first class passenger numbers increasing by 6.2% and revenue from these cabins increasing by 18.8%.

Han Tao noted that the operating cash flows of the three major airlines were all positive and exceeded RMB 10 billion (Air China RMB 13.667 billion, China Eastern RMB 10.697 billion, and China Southern RMB 12.596 billion), indicating that their daily sales and operations have healthy cash collection capabilities, and their cash flow can cover rigid expenditures such as fleet operation and debt repayment. Their profitability is better than their book profit performance.

Turning a profit in the second half of the year still faces challenges.

Financial reports show that the three major airlines still face pressure from cost growth significantly outpacing revenue growth. Fuel costs account for nearly 40% of total costs and are increasing far more than revenue, meaning that peak season passenger growth alone is insufficient to cover the cost shortfall.

Based on the first-half financial report and industry environment, Han Tao believes that if oil prices remain high or continue to rise in the second half of the year, it will be difficult for the three major airlines to achieve a full turnaround in the second half of the year; only if oil prices fall significantly and the cost gap narrows will there be a basis for profitability, and it is possible to achieve a period of profitability during the peak season.

Yu Zhanfu further pointed out that if capacity growth rebounds in the second half of the year while demand continues to prioritize volume over price, the revenue from increased load factors may be offset by lower ticket prices, resulting in a situation where "load factors reach new highs, but ticket prices decline." Furthermore, indicators such as cargo hedging capabilities, the proportion of ancillary revenue, the proportion of direct sales, and hub transfer efficiency have already shown divergence in the first half of the year, and will be more directly reflected in profitability differences in the second half. This will be the most valuable stress test for the three major airlines in this cycle.

Facing the challenges of the second half of the year, the three major airlines have clearly defined their respective paths to break through.

At Air China's 2026 interim results briefing, Xiao Feng, the board secretary of Air China, stated that Air China has formulated a "work plan to cope with high oil prices," which consists of specific strategies from four dimensions: systematically streamlining and improving the quality of inputs, comprehensively tapping potential and increasing revenue on the revenue side, coordinating and leveraging the group's synergy on the collaboration side, and improving the cost reduction and efficiency improvement mechanism on the management side.

Xiao Feng mentioned that in the second half of the year, they will increase investment in the European region, increase the frequency of flights in the North American region, and further optimize routes in Southeast Asia and East Asia based on market conditions. They are also continuing to advance the air-to-ground connectivity project, aiming to have nearly 50 aircraft providing in-flight internet service by the end of the year, covering aircraft types such as B777, A330, A350, and A320.

China Eastern Airlines disclosed its business plan for the second half of the year in its financial report, which includes strengthening channel and revenue management. The airline will continue to promote direct sales and reduce reliance on inter-agency agents, expand overseas sales channels, and encourage cross-selling of tickets among airlines. It will also improve sales of first and business class tickets and transit revenue. Furthermore, it will explore potential for cost reduction and efficiency improvement. This includes implementing cost control projects, closely monitoring fuel price fluctuations, and thoroughly investigating cost reduction potential in areas such as fuel consumption, aircraft maintenance, takeoff and landing services, and operational turnover, while strictly controlling all types of expenses.

At a China Southern Airlines performance briefing, Han Wensheng stated that in terms of route network management, priority will be given to ensuring high-yield international routes connecting hubs, while domestic route capacity will be flexibly adjusted according to market demand. Routes with low load factors and low profitability will be optimized to improve resource utilization efficiency. Furthermore, cooperation between air and rail, and air and ground transportation will be strengthened to enhance penetration into lower-tier markets. (Source: Beijing Business Today)