China’s three largest state-owned airlines reported a combined net loss of around 8.2 billion yuan ($1.22 billion) in the first half of 2026, marking the seventh consecutive year of first-half losses for the carriers.
Air China, China Eastern Airlines and China Southern Airlines were hit by sharply higher jet fuel costs, disrupted international routes and weaker domestic travel demand. The results also raise concerns about profitability during the traditionally stronger third quarter, as an unusually active typhoon season disrupted peak summer travel.
Air China reported a first-half net loss of 2.3 bn yuan, compared with a loss of 1.81 bn yuan in the same period last year. China Eastern posted a loss of 2.2 bn yuan, up from 1.43 bn yuan a year earlier, while China Southern reported a loss of 3.7 bn yuan, compared with 1.53 bn yuan in the first half of 2025.
The combined loss was significantly higher than the trio’s 4.82 bn yuan profit in the first quarter, which had benefited from strong Lunar New Year travel demand.
Fuel costs remain pressure
Higher jet fuel prices were one of the biggest factors affecting airline profitability during the first half. Fuel expenses increased by between 35% and 38% across the three carriers, as the conflict in the Middle East pushed global oil and jet fuel prices higher.
Although fuel prices have eased from their second-quarter peak, they remain more than 50% above pre-conflict levels.
The impact has been particularly significant for Chinese airlines because they have historically made limited use of fuel hedging compared with many international carriers. China Southern said there was currently no effective means available to fully manage its exposure to fluctuations in jet fuel prices.
For airlines already operating in a highly competitive market, the increase in fuel costs has placed further pressure on margins and reduced the benefit of higher passenger revenues.
International demand supports revenue
Despite the losses, all three airlines recorded strong revenue growth during the first half. Air China’s revenue increased 10.5%, while China Eastern and China Southern reported growth of 11.1% and 9.7%, respectively.
The improvement was supported largely by stronger international travel demand. European routes performed particularly well as some passengers shifted away from Middle Eastern hubs affected by the regional conflict.
However, stronger international demand has not been enough to offset challenges in the domestic market. Slower economic conditions, competition from high-speed rail and increased demand for road-based holidays have limited the ability of Chinese carriers to raise domestic fares significantly.
Typhoons add pressure during peak season
The outlook for the second half remains challenging. The third quarter is normally the most profitable period for Chinese airlines, supported by the summer travel season. This year, however, an unusually active typhoon season has disrupted domestic air travel.
According to meteorological data, 21 typhoons had formed in the northwestern Pacific Ocean and the South China Sea by the end of August, nine more than the historical average for the same period.
Aviation data provider Flight Master estimated that Chinese airlines would carry around 142 million passengers on domestic and international routes in July and August, representing a 3.6% year-on-year decline. If confirmed, this would mark the first contraction in the peak summer season since 2022.
HSBC analysts expect the three carriers to record a combined 2026 loss of approximately 16.8 billion yuan, significantly below the market expectation for a combined profit of 1.3 billion yuan.
The financial pressure has also been reflected in the carriers’ share prices, with Shanghai-listed shares of all three airlines down at least 36% so far this year. None of the three carriers declared an interim dividend.
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Domestic fleet expansion continues
Despite the difficult financial environment, the airlines continue to expand their fleets with domestically produced COMAC C919 aircraft. China Eastern increased its C919 fleet to 17 aircraft after receiving three deliveries during the first half. Air China and China Southern each operated 11 C919s, after taking delivery of two and three aircraft respectively.
China Eastern, however, expects to receive 13 fewer C919 aircraft than previously forecast between 2026 and 2028. Air China maintained its existing delivery forecast, while China Southern did not provide an updated forecast in its interim report.
For the MRO sector, the continued introduction of the C919 fleet is significant. As more aircraft enter commercial service, airlines and their maintenance partners will need to develop the supporting infrastructure, technical capabilities, spare-parts supply chains and workforce required for the growing domestic fleet.
At the same time, the financial pressure facing China’s major airlines highlights the importance of cost-efficient maintenance, fleet utilisation and supply-chain management as carriers look to protect margins in an increasingly volatile operating environment.
