Shares of Air China Ltd. (AICAF), China Eastern Airlines Corp. (CHEAF), and China Southern Airlines Co. (CHKIF), three of China's major airlines, have each fallen at least 42% so far in 2026 as weaker domestic travel demand continues to pressure their profit outlooks. Cathay Pacific Airways Ltd., a Hong Kong-based airline, has moved in the opposite direction, rising nearly 6% as passenger volumes increased. This has left China's three largest carriers trailing Cathay by almost 50 percentage points this year, highlighting a sharp divide between domestic-focused travel demand and Cathay's improving passenger trends.

Morgan Stanley, whose analysts recently reviewed the earnings outlook for the airline sector, lowered its net profit forecasts for China's three major airlines by an average of 12% last week, citing soft domestic demand. HSBC Holdings Plc, whose analysts also assessed the carriers, noted that fuel prices remain elevated and that the airlines have limited ability to raise prices enough to protect margins. HSBC analysts suggested that easing fuel costs could provide some support, but cautioned that Chinese travelers remain highly sensitive to prices, meaning higher fares or surcharges may weaken demand while geopolitical and capacity risks could reduce the potential benefits.

HSBC maintained its buy recommendation on Cathay Pacific as short- and long-haul bookings improved, suggesting the airline may remain better positioned than its mainland Chinese rivals. Cathay has also benefited from stronger travel demand since the start of the Iran war, which has helped the company offset record fuel costs. Investors may now focus on Cathay's first-half earnings release in early August, followed by results from Air China, China Eastern, and China Southern later next month, for further evidence of whether the wide performance gap can persist.