Load Factor Gains, Fuel Price Declines, and Renminbi Appreciation Fail to Rescue China’s “Big Three” Airlines from Losses as Ticket Yields Remain the Core Challenge

China’s aviation sector continues to contend with profitability headwinds despite several favorable developments. Rising passenger load factors, lower jet fuel prices, and a stronger renminbi have provided potential relief, yet net margins for the country’s major carriers remain under significant strain.

In a recent analysis, HSBC strategists led by Parash Jain highlight that relentless competition coupled with persistently weak average fares is eroding the financial performance of network airlines. Quarterly filings for the period ending June 30 reveal that Air China, China Eastern Airlines, and China Southern Airlines collectively recorded a loss of RMB 984 million. Although this represents a marked improvement from the RMB 5.1 billion deficit in the same quarter of the prior year, the failure to return to profitability has tempered investor sentiment.

These disappointing results emerged even as positive catalysts were in play. During the second quarter, each carrier achieved a year-on-year uplift of two to four percentage points in average load factors. Singapore’s jet fuel benchmark eased by 18% compared with the prior year, and the renminbi appreciated by 1.3% against the U.S. dollar over the same interval. However, any benefit was largely nullified by declining passenger yields. The reporting period saw yields fall by between 3% and 5%, indicating that higher volumes did not translate into proportional revenue gains.

This summer’s travel season underscored strong demand trends but also reinforced pricing pressures. Data from Flight Manager show that total passenger volumes rose 3.4% year-on-year between July 1 and August 31, with domestic traffic up 2.4% and international travel surging 13.7%. July’s combined average load factor climbed 0.7 percentage points to 83%. Yet the average domestic economy fare excluding taxes and fuel surcharges declined by 6.4% from 2024 levels and was 8.6% lower than in 2019. Such a dynamic of increasing traffic amid falling ticket prices has undermined carriers’ ability to convert volume growth into sustainable profitability, even during historically lucrative months.

In response to these structural challenges, HSBC has revised downward its earnings forecasts for the “Big Three” carriers and Beijing Capital International Airport for 2025 through 2027. The bank now projects continued losses in 2025, with a possible return to profitability not expected until 2026—well behind market consensus. While an industry-led effort to curb aggressive pricing could gradually stabilize yields, analysts caution that entrenched overcapacity and fierce competition will limit any immediate recovery.

At the same time, ongoing declines in fuel costs and slower capacity growth resulting from aircraft supply chain constraints may provide modest relief to fixed cost pressures. Nonetheless, ticket pricing remains the most significant barrier to restoring profitability in China’s major airlines.