China’s state-owned airlines have emerged as unexpected losers from the Iran conflict, with rising fuel costs outweighing gains from increased international traffic, according to Bloomberg.
As of April 1, shares in Air China, China Eastern Airlines and China Southern Airlines have fallen by over a quarter in Hong Kong trading since the conflict began on February 28, making them among the worst-performing stocks on the Bloomberg World Airlines Price Return Index over that period.
The decline reflects investor concerns that Chinese carriers are particularly exposed to higher jet fuel prices. Unlike many global peers, they have limited fuel hedging in place, forcing them to absorb rising costs at market rates. At the same time, competitive pressures in the domestic market, including price-sensitive consumers and competition from high-speed rail, make it difficult to pass those costs on to passengers.
This weakness comes despite a rise in international activity. Chinese airlines have increased flights to Europe by around 20% for the summer schedule, filling capacity gaps left by Gulf carriers affected by airspace closures and regional instability.
Demand on key transit routes between Europe and Asia-Pacific has also strengthened, with some flights selling out and fares reaching as high as 32,524 yuan ($4,730) for a Sydney-London return trip departing April 3 and returning a week later. Prices later in the year fall to around 10,800 yuan.
Chinese carriers have also benefited from the ability to use Russian airspace, enabling more direct routes between Europe and Asia.
However, analysts cited by Bloomberg said higher ticket prices and increased load factors are unlikely to fully offset the impact of rising fuel costs.
Financial performance remains under pressure. Air China and China Eastern both remained unprofitable in 2025, marking their sixth consecutive annual loss, while China Southern returned to profit after five years of losses but faces renewed pressure from fuel costs in 2026.
The outlook for the sector now depends heavily on fuel price trends, with the peak summer travel season seen as a critical period for profitability.