Chinese Airline Stocks Plunge as Oil Surges Above $110

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Shares in Chinese airlines experienced a significant drop today on domestic markets following a sharp rise in international oil prices, which surged past $110 per barrel for the first time since 2022 amid escalating Middle East tensions.

China Eastern Airlines saw the largest decline, with its stock plunging 5.6% to close at 4.83 Chinese yuan (around $0.70) per share. Air China decreased by 4.9%, ending the day at 7.31 yuan, while China Southern Airlines fell 4.6% to close at 6.32 yuan.

Fuel costs remain a primary expense for airlines, making up over 30% of operational costs. In 2024, fuel expenses for Air China, China Eastern, and China Southern reached approximately 53.7 billion yuan ($7.7 billion), 45.5 billion yuan, and 55 billion yuan, respectively. These figures represent as much as 36% of their total expenses.

For instance, Air China reported in its 2024 annual report that, assuming other factors stay constant, a 5% fluctuation in jet fuel prices could increase or decrease its fuel costs by roughly 2.7 billion yuan (about $390 million).

To counteract rising oil prices, airlines usually adjust fuel surcharges or employ hedging techniques. Although some carriers resumed fuel hedging in recent years, these measures remain relatively cautious, and the overall impact is limited.

Additionally, the widespread suspension of flights to the Middle East is further restricting airline operations. Following military strikes on Iran by the US and Israel, several countries across the region, including Iran, Israel, Iraq, Qatar, Bahrain, and the United Arab Emirates, shut down their airspace temporarily. This led to disruptions at major airports such as Dubai International, Abu Dhabi International, and Doha International.

This region was a key area for Chinese airline expansion after the pandemic, with many daily flights to these airports. Last month, the UAE accounted for the highest number of flights from mainland China to the Middle East, followed by Qatar and Turkey, according to aviation data platform Flight Manager.