China's airlines are heading for a collective annual loss of more than 30 billion yuan (about $4.2 billion) in 2026, even as the summer travel season set a new passenger record, according to a report by Huxiu. The summer months are normally the industry's most profitable window, but this year they delivered only razor-thin margins, with high oil prices alone shaving nearly 20 billion yuan off industry profits.
The report, citing data from Flight Manager and airlines' disclosures, says domestic economy fares fell 8.4% year-on-year during July and August, while average ticket prices excluding fuel surcharges dropped 12-16%. Despite a passenger volume of 151 million, up 2.9%, and a load factor of 87.4%, revenue per seat declined. International routes were the only bright spot, with the three major carriers posting 13-17% growth in international passenger revenue in the first eight months, helped by a rising share of foreign travelers.
High-speed rail rivalry and structural problems
The report highlights intensifying competition with high-speed rail, which carried 954 million passengers in July and August, up just 1.2% - the slowest growth since the pandemic. Many long-haul air tickets now cost less than second-class high-speed rail seats, eroding rail's long-distance traffic. The report argues that airlines and rail are entering a phase of mutual harm, as airlines cut prices to retain passengers.
Passenger demographics are also shifting, with fewer children traveling - a sign of declining birth rates. One carrier reported a 4.8% drop in underage passengers, with declines of 5-13% across school-age groups.
The report identifies three root causes of the industry's woes: ineffective anti-involution policies, a lack of exit mechanisms leading to fleet overcapacity, and rising costs that outpace revenue. With no airline having gone bankrupt even during the pandemic, capacity keeps growing while yields fall, creating a prisoner's dilemma. Fuel costs, up 38% in the first eight months, now account for about 40% of total costs, while fuel surcharges cover less than half of the increase. Other costs - aircraft leases, new planes, parts, and maintenance - have risen 20-40% since 2020.
Calls for reform and support for domestic aircraft
The report urges policy support for domestic aircraft like the C919 and C909, suggesting subsidies, route rights, and tax breaks rather than relying on market economics alone. It also calls for deregulating premium fares and ancillary services, noting that Chinese carriers earn far less from add-ons than global peers. Delta Air Lines, for example, generated $11.6 billion from its SkyMiles program in 2025, nearly ten times the total ancillary revenue of all Chinese airlines combined.
"Selling vegetables is not shameful, but selling tickets at cabbage prices is," the report quips, urging carriers to expand ancillary revenue streams such as seat selection, baggage, meals, Wi-Fi, and insurance.
