Surging international oil prices, driven by the ongoing conflict in the Middle East, caused three major state-owned airlines in China to record combined net losses exceeding 12 billion yuan (approximately $1.8 billion) in the second quarter. This wiped out all their profits from the first quarter.
During the first three months, the airlines posted a total net profit of about 4.8 billion yuan (roughly $709 million). However, recent earnings forecasts suggest that in the second quarter, they collectively incurred losses ranging from 12.2 billion yuan to 13.8 billion yuan. The spike in fuel costs outweighed the steady recovery in passenger demand.
Recent projections indicate that China Southern Airlines expects a loss between 3.5 billion and 4 billion yuan for the first half of the year. China Eastern Airlines predicts a loss in the range of 1.8 billion to 2.4 billion yuan, while Air China expects a deficit between 2.1 billion and 2.6 billion yuan. Collectively, their losses for the first six months are anticipated to total between 7.4 billion and 9 billion yuan.
Experts believe that if fuel prices return to more typical levels, these airlines could return to profitability in the latter half of the year. A professor at the Civil Aviation University of China noted that the airlines’ recovery hinges on stabilizing oil prices.
The airlines’ reports indicate that domestic travel demand and tourism are showing ongoing recovery, which supports growth in the aviation sector. Nonetheless, since March, the conflict in the Middle East has sharply increased aviation fuel prices, significantly adding to operational costs across the industry.
A recent report from the International Air Transport Association estimates that the conflict will raise the average price of jet fuel by 70% compared to last year, reaching approximately $152 per barrel. Consequently, global airline fuel expenses are projected to grow by 40%, reaching around $35 billion. Meanwhile, worldwide airline profits are expected to decline from about $45 billion last year to roughly $23 billion this year.
In response to the high fuel costs, China Southern Airlines plans to cut less profitable routes, focus on expanding high-yield services, and improve the utilization of more fuel-efficient aircraft. These strategies aim to reduce costs and cushion the impact of volatile oil prices.
Looking ahead, a slower pace of aircraft deliveries globally is expected to keep capacity tight in the medium to long term, according to industry analysts. The recovery of international flight routes will be a crucial factor in determining the overall profitability of Chinese airlines amid ongoing challenges.