China's largest airlines have been hit particularly hard by the surge in jet fuel prices following the outbreak of war in Iran, with the country's carriers suffering more than their global peers due to a combination of high fuel costs and a price-sensitive domestic market increasingly opting for high-speed rail alternatives [1]. Unlike many international airlines that hedge against fuel price volatility, Chinese airlines hedge little of their fuel purchases, leaving them more exposed to the sharp rise in oil prices that followed U.S. and Israeli attacks on Iran in February [1]. HSBC analysts project that the 'Big Three'—Air China, China Eastern, and China Southern Airlines—will collectively post a net loss of 22 billion yuan ($3.2 billion) in 2026, reversing their profitable first quarter [1].
Since the onset of the Iran war, the share prices of these major Chinese airlines have dropped around 30%, making them some of the worst performers in the region according to LSEG data [1]. In comparison, Singapore Airlines shares fell 9%, Korean Air Lines dropped 7%, Japan Airlines declined 20%, and ANA Holdings slipped 18% over the same period [1]. The spike in jet fuel prices has also led to a wave of flight cancellations, with multiple carriers reducing or suspending international services [1]. During the week ending May 14, domestic passenger flights in China fell 12.7% year-on-year, and cancellation rates soared to nearly 30%, both figures significantly worse than seasonal norms according to Goldman Sachs [1].
Jet fuel prices in the Asia-Pacific region have been especially volatile, with the Platts Singapore benchmark rising from $93 per barrel in late February to a record $242 per barrel in late March, before moderating to $163 per barrel—still a high level for the aviation industry [1]. The Chinese government regulates jet fuel rates, but they remain linked to international crude oil prices, resulting in a 74% surge in ex-factory jet fuel rates in April, according to HSBC [1]. In response, many airlines have increased airfares, fuel surcharges, and baggage fees, with Chinese carriers raising domestic fuel surcharges starting April 5 [1].
CONCLUSION
China's major airlines are facing significant financial and operational challenges due to the Iran war's impact on jet fuel prices, compounded by limited hedging and stiff competition from high-speed rail. With projected losses and sharp declines in share prices, the sector's outlook remains pressured unless fuel costs stabilize or demand recovers. The market reaction has been notably negative, reflecting the severity of these headwinds.