A recent industry note from Sealand Securities Co.,Ltd. highlights that global cross-border airfreight demand remains robust, with cargo volumes sustaining steady growth despite elevated oil prices. On the supply side, extended delivery timelines for new aircraft have limited net capacity expansion across the sector. This supply-demand dynamic is expected to keep cargo yields stable, and if oil prices continue to ease, profit margins could see further upside.
Domestic aviation fuel ex-works prices declined month-over-month in July and August. While fuel costs remain at relatively high levels, the financial strain on carriers has eased noticeably compared with the second quarter of 2026, tempering concerns over oil prices. During the early phase of the summer travel peak, industry demand growth lagged behind supply, dragging year-on-year fares inclusive of taxes into negative territory. However, as travel activity rebounded in the latter part of the season, the fare decline narrowed and eventually turned positive, supporting an improvement in carrier profitability.
Looking ahead, supply in the industry is likely to remain constrained, and with steady demand growth underpinning a sustained fare recovery, airline earnings may expand with flexibility. The firm reiterated its "Overweight" rating on the air transport sector.
Peak Season Fares Under Pressure Early, Turning Positive in Mid-August
Industry supply-demand data for July, released by the Civil Aviation Administration, showed available seat kilometers (ASK) up 3.7% year-on-year and revenue passenger kilometers (RPK) up 5.9%, with the load factor reaching 86.3%, a gain of 1.8 percentage points year-on-year and 2.7 points versus the same period in 2019. Domestic and international traffic volumes rose 5.3% and 7.9% year-on-year, respectively.
Aggregated data from six major carriers, including Air China, China Southern Airlines, China Eastern Airlines, Spring Airlines, Juneyao Airlines, and Hainan Airlines, showed combined ASK and RPK growth of 4.1% and 7.1% year-on-year, respectively, with a load factor of 86.1%, up 2.4 points. Domestic ASK rose 3.6% year-on-year, while international and regional ASK climbed 5.4%, with corresponding RPK growth of 6.4% and 8.9%. Load factors stood at 87.2% for domestic routes and 83.2% for international and regional routes, up 2.3 and 2.7 points year-on-year, respectively, and both 2.8 points above 2019 levels. Carriers ramped up capacity during the peak season, with load factors remaining elevated and showing notable year-on-year gains.
On fares, the average domestic economy class ticket price including taxes reversed course in the first half of August, turning positive after declines earlier in the summer. In June and July, the average domestic fare inclusive of taxes was 805.1 yuan and 834.6 yuan, respectively, up 12.3% and down 0.7% year-on-year. The brokerage estimates that fares excluding fuel costs were 602.5 yuan and 678.1 yuan for those months, down 8.1% and 12.1% year-on-year. Early in the peak season, demand growth was sluggish relative to supply, weighing on fares. From early August through August 18, the average domestic fare including taxes rose 2.2% year-on-year, while the ex-fuel fare fell 4.5%, as travel volumes and load factors recovered, pushing the year-on-year growth rate for tax-inclusive fares back into positive territory. For the period from January 1 to August 18, the average domestic fare including taxes was up 6.7% year-on-year, with the ex-fuel fare down 1.0%.
Oil Prices Edge Up, Renminbi Strengthens During Peak Season
Crude oil prices gradually recovered in July and August. The monthly average Brent price in July reached 84.0 U.S. dollars per barrel, down 0.5% month-over-month but up 20.7% year-on-year. From early August through August 20, the average Brent price hit 86.9 U.S. dollars per barrel, 29.3% higher than the full-month average in August 2025, with the pace of gains widening again. For the year to August 20, the cumulative average Brent price was 87.0 U.S. dollars per barrel, up 23.8% year-on-year, suggesting the annual average could trend higher.
Domestic aviation fuel prices were cut again in August, falling to 7,581 yuan per ton, down 5.6% month-over-month but up 33.6% year-on-year. On the currency front, the central parity rate of the U.S. dollar against the renminbi stood at 7.029 at the end of 2025. By August 21, 2026, the rate had strengthened to 6.782, representing a 3.52% appreciation of the renminbi since the start of the year and a 0.43% gain from the end of the second quarter. The sustained renminbi appreciation could generate currency exchange gains for airlines.
Capacity Rises in Peak Season, Fleet Growth Slows
In July, all six carriers expanded capacity year-on-year as the summer peak began, with Spring Airlines leading at 8% growth in ASK, while the three largest carriers, namely Air China, China Southern Airlines, and China Eastern Airlines, posted gains of 4% to 5%. The combined load factor for the six airlines rose both month-over-month and year-on-year, staying above 85%. On a cumulative basis from January to July, Spring Airlines saw total ASK growth of 14.1%, while the other carriers stayed within 5%, reflecting limited capacity expansion. Load factors for both domestic and international routes remained at high levels, with most carriers posting year-on-year improvements; Air China led with a 4.2 percentage point gain, while China Southern Airlines saw a slight decline.
Regarding fleet additions, in July Air China, China Southern Airlines, China Eastern Airlines, Juneyao Airlines, and Hainan Airlines each added 2, 8, 2, 1, and 2 passenger aircraft, respectively, while Spring Airlines did not take delivery of any new planes. On a net basis, Air China, China Southern Airlines, Juneyao Airlines, and Hainan Airlines each added one aircraft, bringing the combined net increase for the six carriers to 4 aircraft, of which 2 came from the three largest carriers. For the January-to-July period, the six airlines added a net total of 33 aircraft.
Risk Factors
Key risks include geopolitical uncertainties, macroeconomic volatility, weaker-than-expected travel demand growth, supply exceeding forecasts, fare increases falling short of expectations, intensified market competition, sharp oil price spikes, significant renminbi depreciation, and risks to earnings projections.