China's Leading Airlines Face Economic Challenges Amid Profit Decline
China's leading state airlines experienced a decline in profits in the third quarter, despite reaching record passenger numbers and fuller flights during the summer months compared to the previous year. The economic slowdown in China has prompted customers to opt for more affordable travel options, impacting airline revenues.
Beijing-based Air China reported a net profit of 4.14 billion yuan ($581.34 million) for the quarter, slightly lower than the 4.24 billion yuan reported in the same period last year. China Eastern Airlines reported a more significant profit drop on Wednesday, with a net profit of 2.63 billion yuan, representing a 28.2% decline compared to the previous year.
China Southern Airlines, the country's largest carrier, announced on Monday a 23.9% decrease in net profit for the third quarter, achieving a total profit of 3.19 billion yuan. Despite strong demand in the aviation market, China Southern indicated that its operating revenues increased by only 4.6%. This modest increase suggests that, despite increasing capacity by 11% compared to last year and achieving fuller flights, ticket prices have fallen.
The aviation sector is facing challenges globally, including excess capacity and stagnant yields, despite stable demand. China, in particular, has lagged in reintroducing capacity to the market due to the later easing of pandemic travel restrictions at the beginning of 2023. While domestic flight capacity has surpassed 2019 levels, the recovery of international flights remains slow.
Aviation data and consulting firm Ishka observed that the significant gap between increasing capacity and profit growth indicates a tougher environment in China compared to other regions. The Chinese economy is under pressure due to a long-standing real estate crisis and high youth unemployment, despite government efforts to promote growth.
China-based aviation data firm FlightMaster reported that average domestic airline ticket prices in July and August were 17% lower than the previous year and 1% below 2019 levels. International ticket prices also declined, being 25% lower than last summer and 12% lower than in 2019. Another data firm, ForwardKeys, found that ticket prices for flights departing from China during January-September were 39% lower year-on-year.
The "big three" airlines – China Southern, China Eastern, and Air China – returned to profitability in the third quarter of last year but fell back into losses during the traditionally slower winter season for the industry. According to China's aviation regulator, the number of passengers in July and August was 12% higher than last year and 18% higher than pre-pandemic levels.
China's largest low-cost carrier, Spring Airlines, managed to return to profitability earlier than its full-service competitors post-pandemic. However, on Wednesday, Spring announced a net profit of 1.2 billion yuan, a 32.4% decline year-on-year.
The exchange rate during the reporting period was approximately 1 USD = 7.1215 Chinese yuan renminbi.