Chinese Airlines See Hopes Dim for Profit Return With Japan Spat
The spat between China and Japan threatens to worsen a seasonally weak period for Chinese airlines and make it harder for them to post their first annual profit in six years.
Tensions between Beijing and Tokyo flared after Japanese Prime Minister Sanae Takaichi’s recent comments on Taiwan, prompting China to impose flight restrictions on Japan amid economic retaliatory measures.
“This downturn will undoubtedly cause a hit to earnings and create downside risk to current consensus estimates,” said Jason Sum, an analyst at DBS Bank Ltd. He expects earnings pressure to continue through early 2026.
China Eastern Airlines Corp. is the largest operator of flights between the two countries, and in response to the decline in demand, China Southern Airlines Co. and is more influenced by Air China Ltd. Spring Airlines Co. and Juneyao Airlines Co. Smaller but profitable carriers such as are also vulnerable.
Driven by the epidemic and intensifying domestic competition, China’s “Big Three” recorded a total loss of 206.4 billion yuan from 2020 to 2024, according to Bloomberg’s calculations. China Eastern, China Southern and Air China did not respond to emailed requests for comment.
HSBC Holdings Plc analyst Parash Jain said flight restrictions will further squeeze earnings in an already fragile period. Chinese airlines generally see further weakness this quarter due to the lack of a major holiday until the Lunar New Year holidays in January or February and a drop in demand following the National Day holidays in October.
Chinese airlines have tried to adapt quickly by deploying spare capacity to destinations such as Thailand and South Korea. Loosened visa policies for Chinese passengers going to Russia also create opportunities for carriers in the country.
The number of daily scheduled flights from China to Japan fell by almost 50% in December alone, Morgan Stanley said, citing data from airline schedule provider OAG. The average reduction by the end of March is 38%. By contrast, planned bookings to Thailand were up almost 40% from mid-January to offset disruptions in Japan.
Still, Japan has been the most profitable route in terms of passenger yield (the average revenue an airline earns for every mile flown per paying passenger) for Chinese airlines, which are already under a lot of yield pressure this year, according to Bloomberg Intelligence analyst Eric Zhu.
As carriers shift capacity to other routes, additional pressure could be placed on already weak passenger returns, Zhu said during a webinar in early December. He added that these changes probably aren’t significant enough to show up in fourth-quarter earnings, but they could have an impact in the first quarter.
Still, there are signs of optimism in long-term fundamentals; because a stronger yuan makes it cheaper for Chinese airlines to buy jet fuel, whose prices have fallen.
KGI Asia Ltd. Investment chief Cusson Leung said political reasons may affect the industry in the short term, but this should not be a major obstacle as travelers can adapt to alternative destinations.
Increased inbound travel is also a key growth driver for Chinese airlines because they are more able to apply tiered pricing strategies to international travelers, who are often less cost-conscious than domestic leisure travelers, Morgan Stanley analysts led by Qianlei Fan wrote in a note.
They added that a sustained recovery in business travel should further bolster airlines’ pricing power.
With the help of Charlotte Yang.
This article was generated from an automated news agency feed without modifications to the text.
