China's three largest state-owned carriers — China Southern Airlines, Air China, and China Eastern Airlines — have posted a combined net loss of more than RMB 10 billion (USD 1.48 billion) for the second quarter of 2026, reversing a profitable start to the year. The dramatic swing underscores how vulnerable Chinese airlines remain to geopolitical shocks that drive up fuel costs.
The three airlines forecast a first-half net loss ranging from RMB 7.37 billion to RMB 8.97 billion, according to filings. Given that they collectively earned RMB 4.8 billion in the first quarter, the second-quarter deficit is estimated to exceed RMB 10 billion. The reversal was triggered by the sharp escalation of the Middle East conflict in March, which sent international crude oil prices soaring and pushed jet fuel costs to record levels.
Fuel Costs Spike, Erasing Q1 Gains
In the first quarter, Chinese airlines had returned to collective profitability, buoyed by lower jet fuel prices and favorable foreign exchange movements. But the second quarter — traditionally a weaker period for travel demand — saw fuel costs explode. Domestic jet fuel ex-factory prices in April surpassed the previous record set in July 2022, while May prices were double those of the same month in 2025.
According to the International Air Transport Association (IATA), average oil prices in the second quarter surged 90% year on year. IATA sharply downgraded its full-year profit outlook for the global aviation industry in June, even as oil prices eased slightly from their peaks. The impact was particularly acute for Chinese carriers, which hedge only a small fraction of their fuel consumption, unlike many European airlines that use extensive hedging programs to lock in prices.
Cathay Group Chief Executive Ronald Lam noted in March that the regional crisis was affecting airlines primarily through fuel costs, with March fuel prices nearly tripling from January and February levels. For Chinese airlines, the lack of hedging meant that carriers with larger fleets and more extensive route networks — such as the Big Three — bore the brunt of the cost surge, performing worse than their privately owned counterparts in the first half.
The financial strain comes as China's aviation market continues to recover from the pandemic. The country set a new record with 369 million border crossings in the first half of 2026, according to official data, but the fuel cost headwind has dampened the earnings outlook for the nation's flag carriers. The Big Three now face the challenge of managing costs while maintaining capacity on key domestic and international routes, including services to North America, Europe, and Southeast Asia.
Industry analysts point out that the fuel price volatility also highlights the need for Chinese airlines to adopt more sophisticated risk management strategies. While some progress has been made in hedging, the proportion remains low compared to global peers. As IATA's revised outlook suggests, the global aviation industry is bracing for a prolonged period of elevated fuel costs, which will test the resilience of carriers across Asia-Pacific.
For travel professionals — from airline executives to tour operators and corporate travel buyers — the situation underscores the importance of monitoring fuel surcharges and their impact on ticket pricing. The Big Three's Q2 losses may also influence their capacity decisions for the upcoming peak season, potentially affecting route availability and pricing on key city pairs such as Beijing-Shanghai, Guangzhou-Beijing, and Shanghai-Los Angeles.
