The three major airlines narrowed their total losses by nearly 60% last year: China Southern Airlines was the first to achieve annual profitability. How will this year's rising oil prices impact them?

Ask AI · Why can China Southern Airlines be the first among the Three Major Airlines to achieve annual profitability?

The three major state-owned airlines’ performance last year showed further divergence.

Recently, China National Aviation (601111.SH), China Eastern Airlines (600115.SH), and China Southern Airlines (600029.SH), the three major aviation state-owned enterprises, have successively released their 2025 annual reports. According to the company reports, the three major aviation state-owned enterprises’ total operating revenue last year was about RMB 493.682 billion. Based on the reporter’s calculations, this represented a year-on-year increase of more than 4%; their total attributable net losses were about RMB 2.5462 billion, narrowing by nearly 60% year-on-year.

According to Wind data, “Air China, Eastern, and Southern” all hit record highs in revenue last year. In terms of profitability, China Southern achieved its first profit since its losses began in 2020. Air China and Eastern Airlines still have not turned profitable; Air China’s losses last year further widened to RMB 1.77 billion, versus a loss of RMB 237 million in the same period last year, while Eastern’s losses have continued to narrow over the past three years.

By quarter, Air China achieved profits in both the second and third quarters last year, but because the fourth quarter loss was larger, the full-year loss increased. Eastern and Southern Airlines achieved profits in only the third quarter last year. Among them, China Southern’s net profit in the third quarter was RMB 3.84 billion, covering the losses in the other three quarters and achieving full-year profitability.

Air China’s quarterly financial results last year

China Southern’s quarterly financial results last year

China Eastern’s quarterly financial results last year

Passenger load factor rises, but unit passenger yield falls

In a horizontal comparison of the performance of the three major airlines, China Southern continues to lead in revenue scale, exceeding RMB 180 billion with a growth rate of 4.61%; Air China’s revenue exceeded RMB 170 billion, up 2.87% year-on-year; Eastern’s revenue was nearly RMB 140 billion, up nearly 6% year-on-year.

In terms of profitability, China Southern achieved its first profit since its losses began in 2020. Air China’s net loss last year further expanded, while Eastern’s attributable net profit was -RMB 1.633 billion, with losses narrowing.

But it is worth noting that Eastern’s total profit last year turned losses into profit, reaching RMB 274 million. Eastern’s financial report stated that, according to accounting standards, during the reporting period the company reversed part of deferred income tax assets formed from previously deductible losses, which increased income tax expense and caused the company’s 2025 net profit attributable to shareholders of listed companies to be negative.

In recent years, the civil aviation industry’s “strong passenger demand but weak profits” was once a pain point.

The financial reports also show that last year Air China Group’s passenger revenue was RMB 154.856 billion, increasing by RMB 30.67 billion year-on-year. Specifically, income increased by RMB 4.918 billion due to higher capacity deployment; income increased by RMB 3.978 billion due to higher load factors; and income decreased by RMB 5.829 billion due to a decline in yield levels.

Eastern Air Group’s load factor was 85.86% last year, up 3.04 percentage points year-on-year; passenger-kilometer revenue was RMB 0.493, down 3.71% year-on-year, including domestic routes’ passenger-kilometer revenue down 5.03% per kilometer and international routes’ down 1.22% per kilometer. China Southern Air Group’s load factor was 85.74% last year, up 1.36 percentage points from the same period last year; revenue per revenue passenger-kilometer was RMB 0.46, down 4.17% year-on-year, mainly driven by a decline in domestic route passenger-kilometer revenue.

At the national civil aviation work conference held at the beginning of this year, it was pointed out that last year the total aviation population exceeded 500 million, making China the world’s largest aviation passenger population. The civil aviation industry overall achieved a profit of RMB 6.5 billion, and operating efficiency continued to improve.

XiamenAir continues to be profitable, Eastern Yunnan and Shanghang turn losses into profit, and Cathay Pacific remains the most profitable carrier

China Southern’s profitability cannot be separated from the support of its subsidiaries.

Among airlines in which China Southern holds controlling or equity interests, XiamenAir achieved profitability last year, with net profit of RMB 0.779 billion, which calculation-wise represents an increase of more than 10% year-on-year. China Southern Logistics achieved net profit of RMB 3.575 billion last year, representing a year-on-year decline of nearly 15% based on calculations.

China Southern’s controlling and equity-invested company performance

China Southern’s controlling and equity-invested company performance

It should be noted that Eastern and Air China’s logistics assets had already been listed one after another previously, and only China Southern Logistics remains within the listed entity of China Southern. Eastern Logistics (601156.SH) completed its A-share listing in June 2021. Sinotrans Air successfully listed on the Shenzhen Stock Exchange on December 30, 2024, becoming the largest-scale IPO on the A-share market within that year. China Southern Logistics’ path to listing began in 2022, but in late February 2025, China Southern Airlines issued an announcement stating that, based on current changes in the market environment, to coordinate and arrange capital operation plans, after sufficient communication and careful analysis, China Southern Logistics planned to withdraw its application documents for listing on the main board of the SSE.

Among China Southern’s equity-invested companies, Sichuan Airlines Co., Ltd. (Chuan Hang Shares) had a net loss of RMB 1.643 billion last year. China Southern’s annual report disclosed that previously, using its own funds of RMB 4.68 billion to increase capital in Sichuan Airlines, it held a 39% stake. Last year, the investment loss was RMB 936 million; the figure for the prior year was RMB 1.385 billion.

China Southern equity investments

For Air China’s subsidiaries and equity-invested companies, in terms of revenue capacity, last year only Inner Mongolia Airlines’ revenue declined, with a decrease of 7.18%. In terms of profitability levels of its airline subsidiaries, only Cathay Pacific, in which it has an equity stake, achieved a net profit of RMB 8.748 billion. However, three airline companies—Shenzhen Airlines, Dalian Airlines, and Inner Mongolia Airlines—saw their losses narrow year-on-year.

In addition, in terms of equity investments, Air China Group confirmed the balance of long-term equity investments was RMB 18.293 billion, up 8.13% from the end of the prior year. Among them, the balance of its equity investment in Cathay Pacific was RMB 15.213 billion, up 7.36% from the end of the prior year.

Air China equity investments

Among Eastern’s subsidiaries and equity-invested airlines, last year Eastern Yunnan and Eastern Airlines turned losses into profit, Eastern Jiangsu’s losses narrowed, and losses of other airlines further increased.

Eastern’s subsidiary performance

The Three Major Airlines will introduce 110 C919 aircraft over the next three years; Air China confirms participation in the C929 aircraft R&D

In their respective annual reports last year, all three major airlines mentioned support for China’s domestically made large aircraft program. According to the reporter’s calculations, over the next three years the three major airlines plan to introduce 110 aircraft in total.

Air China’s three-year aircraft introduction plan

China Southern’s three-year aircraft introduction plan

Eastern’s three-year aircraft introduction plan

China Eastern, as the world’s largest and first operator of the domestic C919 aircraft, as of December 31, 2025 operated 14 C919 aircraft, covering 22 routes, and was the first to open scheduled services between Shanghai and Hong Kong. By the end of 2025, China Eastern’s C919 fleet had completed more than 45,000 safe flight hours and transported more than 2.6 million passengers, enabling large-scale and normalized operations. It plans to introduce 35 aircraft from 2026 to 2028.

As of the end of last year, Air China’s C919 fleet size was 9 aircraft, and it plans to introduce 35 aircraft from 2026 to 2028. China Southern had 8 C919 aircraft last year and plans to introduce 40 aircraft from 2026 to 2028.

It is understood that the C919 is China’s first jet narrow-body civil airliner developed independently according to internationally recognized airworthiness standards, with independent intellectual property rights. It uses a single-aisle narrow-body layout. Among them, the three major state-owned aviation groups—Air China, China Eastern, and China Southern—have already placed orders for 100 large aircraft with Commercial Aircraft Corporation of China (COMAC). By 2031, the three airlines will each introduce 100 large aircraft.

It is worth noting that in its annual report last year, Air China stated that it is participating in the R&D of the C929 aircraft.

The C929 is China’s first dual-aisle long-range widebody airliner, with 280 seats and a range of 12,000 kilometers. It is currently carrying out preliminary design work. During the 2024 Zhuhai Airshow, Air China and COMAC signed the first-user framework agreement for the C929 airliner, with an intent to become the world’s first customer for the C929 widebody aircraft.

Fuel costs are rising—how do airlines respond?

Aviation fuel is one of the main operating costs for airline groups, typically accounting for around 30%. Volatility in international crude oil prices can have a significant impact on airline group costs.

Last year, due to the combined effects of lower fuel prices and higher fuel consumption, fuel costs for the three major airlines generally decreased. Among them, Air China’s aircraft fuel cost decreased by RMB 3.679 billion year-on-year; China Southern’s fuel cost decreased by RMB 2.463 billion year-on-year, down 4.48%; and China Eastern’s aircraft fuel cost decreased by 3.98% year-on-year to RMB 43.69 billion.

Airline groups’ performance is also greatly affected by fuel price volatility. For example, assuming other variables remain unchanged, if the average aircraft fuel price increases or decreases by 5%, Air China Group’s fuel cost would increase or decrease by about RMB 2.502 billion. Eastern Group’s average aircraft fuel price would increase or decrease by about RMB 2.184 billion. Assuming fuel consumption remains unchanged, if the average fuel price rises or falls by 10%, it would cause China Southern Group’s operating costs during the reporting period to increase or decrease by RMB 5.253 billion.

Recently, affected by geopolitical conflicts in the Middle East, international oil prices and aircraft fuel costs have risen significantly, and several domestic airlines have already raised fuel surcharges for international routes.

To reduce fuel price volatility risk to some extent and to safeguard airline operations, airlines may, within the prescribed scope, determine the collection standards for passenger fuel surcharges on domestic routes independently. Previously, relevant personnel in the aviation industry told reporters from The Paper that the collection of fuel surcharges on domestic routes adopts a mechanism linked to the price of aviation kerosene. Affected by oil price fluctuations, each airline will adjust accordingly.

The next domestic-route fuel surcharge pricing window for domestic airlines will come on April 5. The last adjustment was on January 5 this year: for segments of 800 kilometers (inclusive) and below, RMB 10 fuel fee per adult passenger; for segments above 800 kilometers, RMB 20 per adult passenger—reducing RMB 10 and RMB 20 respectively.

“With international conditions changing continuously, the company will advance the certainty of its strategic development steadily to address external uncertainties.” In a recent earnings briefing held via an online interaction format, Air China pointed out that in the short term, fuel costs are rising; in the long run, Air China believes that higher oil prices help reduce industry overcompetition (“industry involution”), and are conducive to improving the overall competitive landscape. The company currently has no restrictions imposed by internal or external regulatory authorities on fuel-hedging business; whether to carry it out and when to carry it out will depend on market conditions.

In its annual report, Eastern said the company can lock in aircraft fuel costs through crude oil swap contracts, crude oil call options, collar option combinations, crude oil futures contracts, and other instruments to reduce adverse impacts caused by fuel price fluctuations. In 2025, Eastern conducted a cautious evaluation based on the situation in the derivatives market and carried out fuel hedging transactions. By December 31, 2025, the outstanding positions of its un-delivered fuel hedging transactions were 500,000 barrels, which will expire in 2026.

In addition, regarding fuel price fluctuation risks, Eastern also stated in its annual report that the company manages fuel efficiency in a refined and precise manner through measures such as fleet renewal, route optimization, single-engine taxiing, and reducing aircraft weight. It also responds to the pressure from rising fuel prices by optimizing capacity deployment and strengthening marketing to improve load factors and unit revenue levels. The company actively analyzes oil price trends and conducts fuel hedging businesses cautiously.

On the evening of March 30, China Southern disclosed its 2025 annual report and also published an announcement regarding the company’s plan to conduct financial derivatives and futures business in 2026. The announcement stated that this year China Southern plans to carry out foreign exchange financial derivatives business no more than USD 215 million, and fuel oil futures business no more than 1.59 million tons. During the validity period, the highest contract value held on any single trading day will not exceed the approved limit. It is expected that the upper limit of transaction margin and option premium to be used will be RMB 100 million. The company conducts financial derivatives and futures business for the purpose of hedging, to prevent and control adverse impacts of foreign exchange and fuel price fluctuations on cost control and operating performance, reduce operational risk, and enhance financial stability.