In just one quarter, Air China shifted from a profit of nearly 1.9 billion to a full-year loss of nearly 1.8 billion.

Reporter丨Gao Jianghong

Editor丨Gao Mengyang Zhu Yimin

On March 27, Air China released its 2025 annual report, stating that the company achieved an operating revenue of 171.485 billion yuan for the year, an increase of 2.87% year-on-year. However, the net loss attributable to shareholders of the parent company was 1.77 billion yuan, significantly widening from a loss of 237 million yuan in the same period last year.

The full-year loss data for 2025 stands in stark contrast to the previously disclosed third-quarter report—just a few months ago, Air China presented what seemed to be a bright performance, reporting a net profit attributable to the parent company of 1.87 billion yuan for the first three quarters of 2025, a year-on-year increase of 37.31%. How did Air China go from nearly 1.9 billion yuan in profit to a full-year loss of nearly 1.8 billion yuan in just one quarter? What exactly happened behind this?

Source of the image: 21st Century Business Herald

Loss Due to Accounting Treatment, Not Business Operations

According to Air China’s annual report and analysis from multiple brokerage firms, the core reason for the shift from profit to loss for the year was not the deterioration of business operations, but rather an accounting treatment—specifically, the reversal of deferred tax assets.

According to a research report from Western Securities, Air China achieved a cumulative net profit attributable to the parent company of 1.87 billion yuan from Q1 to Q3 of 2025. Based on the annual pre-loss announcement, it is estimated that the company’s loss for Q4 of 2025 will be between 3.17 billion to 3.77 billion yuan, significantly widening from a loss of 1.6 billion yuan in the same period of 2024. Air China clearly explained in the annual report that the main reason for the expanded loss is “according to enterprise accounting standards, the company reviewed the book value of deferred tax assets on the balance sheet date and reversed the portion of deferred tax assets formed by previously deductible losses, increasing income tax expenses.”

In simpler terms, deferred tax assets refer to the amount of loss that a company expects to use to offset taxes in the future. When the company assesses that this portion of the loss may not be fully deductible based on future profit expectations, it needs to “reverse” this asset and account for it as an income tax expense for the current period. Although this accounting treatment reduces the current book profit, it does not affect the company’s actual operating cash flow and business fundamentals.

Air China emphasized, “From an operational substance perspective, the company’s performance is still continuously improving, showing characteristics of increased investment, increased revenue, and reduced costs.” In fact, Air China’s operational data for 2025 does show a steadily improving trend. According to financial report data, in 2025, Air China transported 161 million passengers, an increase of 3.40% year-on-year. The available seat kilometers (ASK) for passenger transportation was 367.641 billion, an increase of 3.24% year-on-year. Among them, domestic and international routes grew by 0.11% and 11.96% year-on-year, while regional routes decreased by 1.58%. The revenue passenger kilometers (RPK) were 301.016 billion, an increase of 5.86% year-on-year. Specifically, domestic, international, and regional routes increased by 2.81%, 14.84%, and 1.55% year-on-year, respectively. The passenger load factor was 81.88%, up 2.03 percentage points year-on-year.

Divergence in Subsidiary Performance Intensified

Besides accounting factors, Air China’s losses are also closely related to its complex subsidiary structure. The annual report shows a significant divergence in the performance of Air China’s main subsidiaries and equity investees.

As an important equity investee of Air China, Cathay Pacific Airways achieved a net profit attributable to the parent company of 8.748 billion yuan in 2025, becoming an important support for Air China’s performance. Additionally, China National Aviation Holding Company Engineering Corporation (Ameco) reported a net profit of 475 million yuan, and AVIC Finance made a profit of 54 million yuan, both comparable to the previous year. Except for these three companies, all other subsidiaries and equity investees of Air China reported losses last year. Shenzhen Airlines lost 1.244 billion yuan, Shandong Airlines Group lost 780 million yuan, Macau Airlines lost 655 million yuan, Dalian Airlines lost 187 million yuan, Beijing Airlines lost 130 million yuan, and Inner Mongolia Airlines lost 25 million yuan.

This means that, although Air China’s headquarters and some core businesses continued to improve in 2025, the losses of multiple subsidiaries eroded the overall profit performance. Combined with the impact of the Q4 reversal of deferred tax assets, this ultimately led to an expanded full-year book loss.

Furthermore, after the National Day holiday in 2025, travel demand significantly declined. Data from Flight Manager showed that in the first two weeks of December 2025, domestic ticket prices had fallen by 1.3% compared to the same period last year, further compressing the already thin profit margins. Additionally, the fourth quarter of 2025 faced the impact of a reduction in Japan-China routes. Notably, the Japan route is one of the “most profitable” routes in international business, with analyses suggesting that this route alone could contribute about 10%-20% of profits to Air China’s international business. However, in December 2025, over 1,900 flights from mainland China to Japan were canceled, which further intensified operational pressure in Q4 for Air China, which has significant investments in the Japanese market. The financial report from Air China also indicated that the revenue per kilometer for passengers in 2025 was 0.51 yuan, a year-on-year decrease of 3.63%.

Despite the expanded book loss in 2025, many institutions remain optimistic about Air China’s future development. Western Securities maintained a “buy” rating, predicting that Air China is expected to turn a profit in 2026. Data from the Civil Aviation Administration shows that the entire industry completed a total transportation turnover of 1,640.8 billion ton-kilometers and transported 770 million passengers in 2025, representing year-on-year increases of 10.5% and 5.5%, respectively. As international routes further recover, ticket prices gradually stabilize, and cost factors continue to improve, Air China’s operational fundamentals remain on a recovery track.

It is noteworthy that in October 2025, Air China’s controlling shareholder, Aviation Industry Corporation of China, and related parties announced plans to fully subscribe to a private placement of no more than 20 billion yuan, all of which will be used to repay debts and supplement working capital. This move may help optimize Air China’s asset-liability structure and lay a more solid financial foundation for future development.

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