China’s Major Airlines Struggle with Losses Amid Regional Competition, Airport Operators Flourish

China’s top three state-owned airlines continue to grapple with substantial losses, even as regional competitors and airport operators benefit from a strong recovery in passenger traffic.

In the lead-up to the Lunar New Year, Shanghai-based China Eastern Airlines announced a projected net loss of up to 4.3 billion yuan ($592 million) for 2023, making it the largest loser among China’s top three carriers. China Southern Airlines, based in Guangzhou, estimated losses of up to 1.87 billion yuan, while Air China forecasted a smaller loss ranging between 160 million yuan and 240 million yuan.

Despite narrowing losses compared to 2022—when China Eastern, China Southern, and Air China reported losses of 8.16 billion yuan, 4.2 billion yuan, and 1.04 billion yuan respectively—the carriers cite several ongoing challenges.

China Eastern attributed its performance to “intensified competition, insufficient business travel demand, fluctuating oil prices, and currency depreciation.” Similarly, China Southern blamed a “sluggish recovery in international markets” and higher aircraft and parts costs due to global supply chain disruptions. Air China pointed to an “increasingly complex and volatile operating environment” and depreciation of the yuan, which affects payments made in U.S. dollars for fuel and aircraft.

In contrast, smaller regional airlines are showing stronger financial results. Chongqing-based China Express Airlines expects a return to profit with net earnings of up to 280 million yuan, reversing a 964 million yuan loss from 2022. Other carriers, including Hainan Airlines Holding, Spring Airlines, and Juneyao Airlines, have yet to release full-year results but reported profitability through the first nine months of 2023.

China’s airport operators are thriving amid the resurgence in passenger traffic. Shanghai International Airport, which manages both Hongqiao and Pudong airports, reported an estimated doubling of net profit to 2.05 billion yuan in 2023. The airport handled over 124 million passengers, a record high, while cargo tonnage exceeded pre-pandemic levels from 2019.

Similarly, Guangzhou Baiyun International Airport projected its net profit to have doubled to 1.01 billion yuan, bolstered by significant increases in flights, passenger numbers, and cargo traffic. Shenzhen Airport also expects a 12% rise in net profit to 443 million yuan.

However, Hainan Airport Infrastructure stands as an exception, anticipating a 66% decline in net profit to 320 million yuan due to weaker revenue from real estate and duty-free sales.

China’s state carriers remain under pressure compared to regional peers. Japan’s All Nippon Airways and Japan Airlines project net profits of 120 billion yen ($769 million) and 100 billion yen ($641 million), respectively, for their financial year ending in March. Taiwanese airlines, including China Airlines and Eva Airways, as well as South Korea’s Korean Air, have also returned to profitability.

Hong Kong’s Cathay Pacific Airways announced a strong recovery, with CEO Ronald Lam Siu-por confirming that flights have returned to pre-pandemic levels. The airline reported “strong financial performance” over the past two years, enabling HK$100 billion ($12.8 billion) in investments and profit-sharing bonuses for employees.

Meanwhile, Hong Kong-based Greater Bay Airlines faced setbacks, canceling 128 flights for February and March due to delayed aircraft deliveries and inspection requirements. The airline also suspended its Hong Kong-Seoul route, citing unsatisfactory performance.

The Association of Asia Pacific Airlines reported that regional carriers served 334 million international passengers in the first 11 months of 2023, a 31% year-on-year increase, with cargo traffic growing by 14%. Director General Subhas Menon highlighted robust demand in both business and leisure segments, noting that the region’s travel markets have fully recovered to pre-pandemic levels.

However, Menon cautioned that global economic uncertainty and supply chain disruptions could pose challenges for the region’s airlines.

Looking ahead, analysts like Qianlei Fan of Morgan Stanley remain cautiously optimistic about the prospects for Chinese carriers, particularly during the Lunar New Year season, with strong demand on routes to Japan and South Korea. However, routes to Thailand have reportedly fallen short of expectations.