Fuel Shock Deepens Airline Profit Squeeze

China’s three largest airlines are facing another difficult year after their third-quarter results deteriorated sharply. Air China and China Eastern are expected to record their seventh consecutive annual net losses since the Covid-19 pandemic, while China Southern, which returned to profit in 2025, is forecast to fall back into a loss. All three carriers reported losses for the first nine months of 2026, reversing their performance over the same period a year earlier. Higher jet fuel costs were a major factor. The airlines said fuel-price increases hurt results during July-September, normally their most profitable quarter because it coincides with the summer travel season. Jet fuel prices have more than doubled since the US and Israel began a military campaign against Iran in late February. Chinese airlines are especially exposed because they hedge a smaller share of their fuel needs than many Asian and European competitors. Weak domestic fares also constrained earnings. Competition from other airlines and high-speed rail kept prices under pressure, and Huatai Securities estimated that Air China’s average fare yield fell 5% during the quarter. BofA Global Research analyst Nathan Gee said the carriers were likely to remain loss-making in the seasonally weaker fourth quarter, despite domestic fares rising by double digits year-on-year after October’s Golden Week holiday as airlines limited capacity. Gee said elevated fuel costs and subdued consumer demand continued to weigh heavily on margins. Efforts to increase aircraft flying hours may help manage expenses, but the scope for major cost reductions is limited. The financial strain has also been reflected in the stock market: Air China, China Eastern and China Southern shares have fallen 38%, 46% and 39%, respectively, so far this year.

Ryanair CEO Michael O’Leary warned that European airfares could rise by 10% to 20% in 2027 as airlines face higher jet-fuel costs when existing fuel hedges expire. He described the situation as a “very significant cost cliff,” noting that jet fuel was trading at $170 per barrel and that unresolved conflict in the Middle East was contributing to uncertainty. Ryanair’s profit fell 15% to 2.15 billion euros ($2.3 billion) in the first half of its fiscal year, partly because the price of the 20% of its fuel that was unhedged doubled. Ryanair has hedged 80% of its jet fuel for the year at $67 per barrel, helping protect its earnings from the recent price surge. It has also hedged at least 25% of its 2028 fuel at $95 per barrel. Still, the airline expects an estimated 2-billion-euro increase in fuel charges next year, which it does not expect higher short-haul fares alone to fully offset. In response, it is reviewing costs, including crew rations, the possibility of a temporary pay freeze, and using AI to improve efficiency. The airline has reduced its full-year passenger target from 216 million to 214 million and expects winter traffic from November to March to be broadly flat year over year. O’Leary said Ryanair had cut winter capacity because expanding while buying unhedged fuel at $170 a barrel would not make sense. The shares rose 3.7% on Monday, although they were down about 19% for the year. An eToro analyst said investors may already have priced in the effects of unhedged fuel and weaker summer fares. Ryanair also reported 2.6 billion euros in cash at the end of September after repaying 1.3 billion euros of debt; O’Leary said the company had effectively no debt and remained cash-positive.

Ryanair is considering a temporary pay freeze for staff as it faces sharply higher fuel costs linked to the US-Israel war with Iran. The airline expects fuel prices to remain high well into 2027 unless the conflict is resolved quickly, and estimates its short-term fuel bill will be €2bn (£1.6bn) higher. Chief executive Michael O’Leary said airfares would need to rise by double digits next summer, reiterating that a 20% increase might be needed to cover jet-fuel costs, although he was uncertain whether fares would reach that level. He expects double-digit increases across European airlines in 2027. Ryanair’s pre-tax profits fell 16% to €2.4bn in the six months to the end of September. Fuel costs rose 15%; while the airline had hedged 80% of its fuel purchases at fixed prices, the remaining portion was exposed to elevated prices. The company is also considering a pay freeze from April next year as multi-year labour agreements expire, and plans to slow hiring as costs rise. Unite, which represents Ryanair staff, said it had not been informed of a pay-freeze proposal and noted that it has a multi-year agreement covering next year. National officer Oliver Richardson said the deal was not linked to company performance and that the union expects Ryanair to honour it. Other European unions reportedly have similar agreements. The airline also plans to expand its use of artificial intelligence in back-office and support functions. Separately, it has reduced winter flights and expects further cuts. O’Leary said capacity reductions across the short-haul airline industry could continue into summer 2027, with short-haul capacity remaining constrained into the early 2030s. The article attributes the fuel-price surge to reduced Gulf supplies of refined products and increased competition for fuel from other sources.