Analysts say it’s the result of China’s falling ticket prices amid its ongoing sluggish economy.
China’s three largest airlines, which are state-owned, reported a significant slip in third-quarter profits despite record-high passenger traffic.
Analysts say it’s the result of China’s falling ticket prices amid its ongoing sluggish economy.
China Eastern Airlines reported a net profit of 2.63 billion yuan ($369 million), down 28.2 percent from the same period last year.
China Southern Airlines, which is China’s largest airline, said on Oct. 28 that its third-quarter net profit fell 23.9 percent year-on-year to 3.19 billion yuan ($448 million), despite the airline serving more passengers.
Data from China Southern Airlines showed that the company increased capacity by 11 percent in the third quarter compared with the same period last year, but operating revenue in the third quarter only increased by 4.6 percent, indicating that airfares have fallen.
Beijing-based Air China reported on Oct. 30 that its net profit in the third quarter was 4.14 billion yuan ($581.34 million), down from 4.24 billion yuan ($595 million) in the same period last year, or just over 2 percent.
Aviation data company ForwardKeys said that from January to September this year, the price of outbound air tickets from China fell 39 percent year-on-year.
Meanwhile, Chinese airlines have been using cheaper fares in competition with European airlines, several of which canceled routes to China, citing unfair competition from Chinese government subsidies.
Spring Airlines, China’s largest low-cost private airline, returned to profitability earlier than full-service rivals China Southern Airlines, China Eastern Airlines, and Air China after the COVID-19 pandemic. However, it also saw a net profit decline in the third quarter of this year, with data released on Oct. 30 showing a 32.4 percent year-on-year drop to 1.2 billion yuan ($168 million).
Average domestic airfares in China in July and August were 17 percent lower than last year and 1 percent lower than in 2019, according to FlightMaster, a China-based aviation data company. International airfares were 25 percent lower than last summer and 12 percent lower than in 2019, FlightMaster said.
In the third quarter, Chinese airline passenger trips reached 200 million, which is a record high, according to official data.
A recent report from aviation data and consulting firm Ishka said the significant gap between capacity increases and net profit growth suggests the economic situation in China is more severe than the slowdowns experienced elsewhere.
Frank Xie, professor of Business at the University of South Carolina Aiken, told The Epoch Times on Oct. 31 that the main reason for the decline in profits is in the domestic market.
“Although the number of passengers is increasing, the decline in fares has led to the airlines’ decline in profits. The real situation is that China’s economy continues to deteriorate, and people continue to tighten their budgets and look for other cheaper ways to travel, such as taking high-speed rail or driving their own cars. Airlines have to cut prices to survive. The result of price cuts is a decline in their profits.”
Chinese American economist Davy J. Wong told The Epoch Times on Oct. 31 that Chinese airlines made a wrong decision on post-pandemic travel.
“They thought that consumption would rebound sharply, so they significantly expanded their fleets in recent years. Meanwhile, the Chinese regime often uses purchases in negotiations with the European Union. Aircraft serve as a bargaining chip in the Chinese regime’s diplomatic negotiations. So we see that the number of aircraft in airline fleets increased by about 8 percent in 2023, increasing fixed expenditures and maintenance costs for the airlines. At the same time, flights and routes are rapidly decreasing, and revenue is dropping.
“In addition, the three major Chinese state-owned companies are also competing with each other in the market,” the economist said.
Wong said that the reason behind the decline in airline profits is China’s sluggish economic growth and weak consumption.
“With the overall economic activity inactive, profitability declining, unemployment increasing, and serious aging population, ordinary people’s incomes are tight and they are unwilling to spend more on high-end consumption, such as air tickets, big-ticket items, overseas travel, and cross-regional travel.”
In the international market, Wong said, “Chinese airlines are limited by visa policies, international geopolitical risks, and weak overseas demand in opening overseas routes. China’s ability to attract foreigners or foreign businessmen to invest, exchange, study, and visit China has also declined, which means that fewer companies and research institutions will come to China, leading to a decline in China’s international influence and investment attractiveness in the future.”
Luo Ya and Reuters contributed to this report.