By Lisa Barrington and Sophie Yu
SEOUL/BEIJING (Reuters) – China’s three big state-owned airlines posted their fifth straight year of losses this week, citing domestic market competition, low international and business travel demand, supply chain problems and currency depreciation as challenges.
China Southern Airlines, Air China and China Eastern have struggled to return to break-even after the pandemic, despite the industry globally returning to profit in 2023.
Annual losses among the three major carriers did however narrow from an average of $5 billion per airline at the peak of their pandemic struggles in 2022, to an average of $286 million each in 2024.
While China’s domestic capacity is higher than in 2019, the country has been slower than the rest of the world to bring back international seats because pandemic travel restrictions were not lifted until early 2023.
Domestic economic pressures and political tensions with other countries are also muting international travel, and in March international capacity was still around 20% lower than in the same month of 2019, schedule data from Flight Master and Cirium shows.
Flag carrier Air China said it was facing “relatively huge industry competition pressure”, particularly in the domestic market where airlines were still flying their large, wide-body planes that would typically be used for international routes.
Domestic capacity, however, is moderating and in March was 1.7% lower than the same month last year, Cirium data shows.
DBS Bank said it had tempered its optimism regarding a recovery in earnings by Chinese airlines.
“Passenger yield pressures endure in the face of consumer price sensitivity and broader macroeconomic uncertainty,” said analyst Tabitha Foo.
Air China, which has around 930 aircraft, reported a net loss attributable to equity shareholders on Thursday of 230 million yuan ($31.66 million) in 2024, compared to a 1.04 billion yuan loss in 2023.
This is an 99% improvement in its position since a 39 billion yuan loss in 2022.
China Southern, the country’s largest carrier by capacity, on Wednesday reported a loss of 1.77 billion yuan in 2024, compared to a 4.14 billion loss in 2023.
China Southern in January said it was under significant operating pressure due to a relatively slow international market recovery, a sharp increase in aerospace part prices, and the yuan’s depreciation.
In its outlook for this year, the airline said it sees instability in global economic growth.
In the first nine months of 2024, both Air China and China Southern Airlines recorded net profits, amounting to 1.36 billion yuan and 1.97 billion yuan respectively. However, the full-year operations were loss-making, indicating a significant hit in the September-December period.
Shanghai-headquartered China Eastern reported a loss of 4.2 billion yuan in 2024, compared to a 8.17 billion yuan loss in 2023.
China Eastern said in 2024 the Chinese civil aviation industry was still facing significant operational pressures.
AIRFARES FALLING
Airlines in Asia have been seeing good travel demand but airfares are coming down from pandemic-era record highs as carriers continue to restore seat capacity.
Annual passenger yields, a proxy for airfares, fell 12.7% at China Southern, and 12.4% at Air China.
Data from China-based Flight Master shows the average domestic economy class fare in 2024 dropped by 12.1% year-on-year to 767 yuan, or about $105, squeezing profit margins.
China accounts for more than 40% of Asia-Pacific’s total passenger traffic, according to airline body IATA.
International ticket prices in China were 32% lower in 2024 than in 2023, compared to 12% lower in Asia as a whole, ForwardKeys data shows.
Total passenger revenues rose for all three of China’s top carriers, but growth was strongest in the international segment as capacity was brought back online.
HSBC in January said that any attempt by airlines to raise ticket prices could dampen travel momentum given China’s weaker consumer economy.
($1 = 7.2634 Chinese yuan renminbi)
(Reporting by Sophie Yu in Beijing and Lisa Barrington in Seoul; Editing by Jamie Freed and Jan Harvey)
