JPMorgan says Chinese airlines face worst quarterly loss in 3 years

China's three biggest carriers are on track to post their worst quarterly loss in three years, JPMorgan said, as high fuel costs and weak ticket prices overwhelm the sector.

"The results validate our cautious stance on the sector," Karl Chan, Asia transport analyst at JPMorgan, said. "Summer travel demand fell short of expectations, with passenger traffic and flight volumes both declining year over year."

Air China Ltd. (00753.HK) is expected to report a net loss of RMB4.1 billion in the second quarter, swinging from a RMB200 million profit a year earlier. China Eastern Airlines Corp. (00670.HK) is forecast to lose RMB3.7 billion, a 756% widening from the same period in 2024, while China Southern Airlines Co. (01055.HK) is projected to post a RMB5.2 billion loss, up 562% year over year. The three carriers averaged a net profit in the first quarter before the reversal.

For the first half, the trio is expected to record an average net loss of RMB2.7 billion. Air China's interim loss is seen at RMB2.4 billion, China Eastern's at RMB2.1 billion and China Southern's at RMB3.7 billion — representing year-over-year deteriorations of 30%, 19% and 143%, respectively.

JPMorgan attributed the weakness to elevated jet fuel prices, persistently low base fares and intensifying competition from high-speed rail, which has eroded domestic air travel demand. The bank noted that recent cuts to fuel surcharges failed to stimulate bookings.

The brokerage maintained Underweight ratings on China Eastern and China Southern, while keeping Neutral ratings on Air China and Spring Airlines (601021.SH).

The earnings warnings from the three state-owned carriers signal that the sector's recovery remains fragile more than two years after China's reopening. Investors will watch for any capacity adjustments or government support measures in the second half.

This article is for informational purposes only and does not constitute investment advice.