China's three largest state-owned airlines — Air China, China Eastern, and China Southern — have issued profit warnings for the first half of 2025, pointing to soaring jet fuel costs as a primary factor behind widening losses. The warnings come as the International Air Transport Association (IATA) also downgraded its global airline profit outlook, underscoring the pressure high energy prices are putting on the aviation industry.
Losses Mount for China's Big Three Carriers
In filings to the Hong Kong Stock Exchange on Tuesday, each carrier detailed expected net losses for the six months ending June 30. Air China projected a loss of 2.1 to 2.6 billion yuan (approximately $290 to $360 million). China Eastern forecast a loss of 1.8 to 2.4 billion yuan, while China Southern warned its loss would be between 3.47 and 3.97 billion yuan — more than double the loss it reported in the same period last year.
All three airlines explicitly cited higher aviation fuel costs as a key driver of the weaker results. Jet fuel is typically one of the largest operating expenses for airlines, and a sharp rise in prices can quickly erode margins, especially in a competitive market like China where ticket prices are often kept low to attract passengers.
Global Context: IATA Cuts Profit Forecast
The warnings from China's carriers align with a broader industry trend. IATA, the global trade association for airlines, recently cut its profit forecast for the airline industry, citing higher fuel costs and ongoing economic uncertainty. While IATA did not single out China, the region's airlines are particularly vulnerable because of their heavy reliance on international routes and exposure to volatile fuel markets.
The jump in jet fuel prices is linked to rising crude oil costs, driven by factors including geopolitical tensions in the Middle East and supply constraints. For airlines, these costs are largely passed through to consumers in the form of higher ticket prices, but in a price-sensitive market like China, carriers may struggle to fully offset the increase.
What This Means for Investors
For everyday investors, the widening losses at China's biggest airlines signal that the sector remains under significant financial strain. Even as air travel demand has recovered from the pandemic, high fuel costs are eating into any potential profits. Investors should watch for further updates on fuel hedging strategies — contracts that lock in fuel prices — which can help airlines manage volatility. However, if oil prices remain elevated, the outlook for airline stocks could stay negative.
The broader economic backdrop in China also matters. China's Q2 growth missed forecasts as weak property and investment weighed on the economy, which could dampen travel demand further. Additionally, the yuan strengthened to a June high amid stimulus hopes, but a stronger currency can make Chinese exports more expensive and potentially reduce business travel.
Fuel costs are not the only challenge. Chinese airlines also face intense competition from domestic and international carriers, as well as regulatory pressures. The market split in China has seen investors rotate out of some sectors, and airlines may not be a safe haven.
Looking Ahead
The next key data point for investors will be the airlines' full first-half results, due in August, which will provide more detail on cost structures and any mitigating actions. Meanwhile, IATA's revised profit forecast suggests the pain is not limited to China — airlines globally are feeling the pinch. For those holding airline stocks or considering them, the focus should be on fuel price trends, demand recovery, and any government support measures.
In the near term, the combination of high fuel costs and a sluggish Chinese economy suggests that the country's biggest airlines may continue to burn cash, making them a risky bet for investors seeking stability.
