Since the beginning of the Iran war, China's major airlines, including Air China, China Eastern, and China Southern, have experienced a dramatic decline in their stock prices, dropping around 30%. This downturn is attributed to soaring jet fuel prices, which spiked from $93 per barrel in late February to a record $242 per barrel in late March, before settling at $163 per barrel.
Unlike many global airlines that hedge against fuel price fluctuations, Chinese carriers hedge very little, making them particularly vulnerable to these rising costs. Analysts from HSBC predict that the Big Three airlines will incur a combined net loss of 22 billion yuan ($3.2 billion) in 2026, reversing their earlier profitability.
The domestic market is also suffering, with a 12.7% year-on-year drop in domestic passenger flights and cancellation rates nearing 30%. To mitigate costs, airlines have raised fuel surcharges significantly, but analysts warn that these increases may not fully offset the higher fuel expenses due to the price-sensitive nature of the market.
Furthermore, the expansion of China's high-speed rail network poses a competitive threat, as it offers a cheaper alternative for travelers on many routes.
The lack of effective fuel hedging strategies and the competitive pressure from rail travel are expected to hinder the recovery of Chinese airlines compared to their international counterparts, which have better pricing power and hedging capabilities.
Despite these challenges, analysts note that state-owned Chinese carriers may have more resilience due to government support, potentially shielding them from bankruptcy risks faced by private airlines globally