Despite the "three major benefits" of improved passenger load factor, falling oil prices, and the appreciation of the RMB, the "three major airlines" are still in the red, and ticket prices are a "big problem."

The Chinese aviation industry is facing a severe reality: even with a series of favorable conditions such as rising passenger load factors, declining fuel costs, and the appreciation of the Renminbi, its profitability remains under pressure. According to news from the Chasing Wind Trading Desk, HSBC analysts, including Parash Jain, stated in their latest report that under intense market competition, persistently weak fare levels are eroding airlines' profit margins. Latest financial data shows that the three major airlines—Air China, China Eastern Airlines, and China Southern Airlines—reported a combined loss of RMB 984 million in the second quarter. Although this represents a significant narrowing compared to a loss of RMB 5.1 billion in the same period last year, the failure to turn a profit still casts a shadow over market expectations. The disappointing performance is notable because it was recorded against a backdrop of multiple favorable factors. Data indicates that in the second quarter, the passenger load factor for the three major airlines increased by 2 to 4 percentage points year-on-year, Singapore jet fuel prices fell by 18% year-on-year, and the Renminbi appreciated by 1.3% against the US dollar during this period. However, these positive factors were almost entirely offset by the decline in ticket prices. During the reporting period, passenger yield fell by 3-5% year-on-year, failing to effectively convert the increased passenger traffic into profits. Strong Passenger Traffic Cannot Offset Fare Erosion The aviation transportation market this summer has shown strong demand on the passenger side. According to data from Flight Butler, from July 1 to August 31 during the summer travel season, total passenger volume increased by 3.4% year-on-year, with domestic routes growing by 2.4% and international routes by 13.7%. The average passenger load factor for the three major airlines in July also increased by 0.7 percentage points year-on-year to 83%. However, the growth in passenger volume did not translate into corresponding revenue growth. According to Flight Butler data, during the summer travel season, the average ticket price for domestic economy class (excluding taxes and fuel surcharges) fell by 6.4% compared to the same period in 2024, and was down 8.6% compared to the same period in 2019. The report points out that the continued decline in ticket prices, especially during traditionally high-revenue seasons, severely undermines the profitability of airlines. This phenomenon of "increased volume and decreased prices" indicates that despite slight improvements in financial performance, major airlines still face challenges in achieving sustainable profitability in the second half of the year. Profit Outlook Under Pressure, Institutions Downgrade Expectations In light of ongoing fare pressures and structural challenges, HSBC has significantly downgraded its profit forecasts for the three major airlines and Beijing Capital International Airport for 2025 to 2027. The bank expects that the three major airlines and Beijing Capital International Airport will continue to report losses in 2025, with profitability potentially not returning until 2026 at the earliest. This forecast is far below market consensus. The report notes that a potential positive factor is that the industry may stabilize fares and curb predatory pricing behavior through "anti-involution" actions. However, analysts also warn that this could be a gradual process, and given the entrenched market overcapacity and competitive pressures, meaningful improvements in fare levels are unlikely in the short term. Additionally, the continued decline in fuel prices and capacity growth limitations due to aircraft supply chain issues may provide some relief to the airlines' rigid cost structures