Summary of Key Points
This summer, the aviation industry has experienced a stark contrast between booming and struggling sectors: on the surface, domestic and international flight bookings have increased by about 7% year-on-year, suggesting a busy season. However, airlines are generally suffering losses—the three major carriers lost a combined total of 12.2 to 13.8 billion yuan in the second quarter, wiping out all the profits they made during the Spring Festival travel rush. The main reasons for this include stagnant ticket prices (the average domestic economy class fare decreased by 1.2% year-on-year, and is even 6.1% lower than in 2019), coupled with consumer reluctance to spend, the competition from high-speed railways, and intense competition among airlines for passengers. Regulatory authorities have stepped in to address this vicious cycle, and airlines are beginning to adopt more tailored services to meet the diverse needs of customers (for example, China Southern Airlines offers paid dining options, and its narrow-body aircraft now feature fully flat-folding business class seats) in an era of segmented consumer behavior.
I. Summer Aviation: More Passengers, Less Profit
Flight bookings in the second half of July were 7% higher than last year, but airlines are reporting staggering losses. For instance, one airline saw its average fare drop by 8% due to schedule reductions caused by a typhoon, resulting in a nearly 40% decrease in gross profit. The three major carriers suffered even more: they reported a combined pre-loss of 7.37 to 8.97 billion yuan in the first half of the year, compared to a profit of 4.8 billion yuan in the first quarter—meaning they lost all their Spring Festival profits and even had to make up for them with additional losses.
The key issue is that ticket prices are not keeping up with inflation. According to Reuters data, the average domestic economy class fare in the first 14 days of July was 831 yuan, 10 yuan lower than last year and 6% lower than in 2019. Airlines had hoped to earn half of their annual profits during the summer season, but instead, the peak travel period turned into a low-profit one.
II. Three Major Barriers to Rising Ticket Prices
1. Consumer Sensitivity: Passengers prefer to wait, switch, or modify their travel plans rather than pay inflated prices. Data from the National Bureau of Statistics shows that retail sales of consumer goods only increased by 1.3% in the first half of the year, and urban residents' spending grew by just 2%. People are willing to travel but more cautiously with their money. For example, a family might choose to delay their trip by a few days, change cities, or opt for high-speed rail if flying costs an extra couple of hundred yuan.
2. High-Speed Rail Competition: High-speed rail is slower but cheaper, and even sleeper berths are in high demand. The Yangtze River Delta region expects to transport 190 million passengers this summer, a 3% increase from last year. The author experienced this firsthand when trying to book a soft sleeper berth for an elderly relative; the only option was to switch to high-speed rail, which cost only 100 yuan more.
3. Intense Competition Among Airlines: Major airlines are encroaching on the markets of smaller ones. Previously, large carriers focused on business routes in major cities like Beijing and Shanghai, leaving smaller airlines with international routes to second-tier cities or less popular intercontinental flights. Now, with the market shrinking, large airlines are entering these areas. For example, a private airline's route to Northern Europe from a central Chinese city became unprofitable after a large carrier increased its flights in the same direction from Beijing.
III. Regulatory Measures to Curb Vicious Competition
In June, the Civil Aviation Administration issued new regulations to address this intense competition:
- Domestic Routes: New players are prohibited from entering routes already served by four or more airlines. Flights will not be added if seat occupancy and traffic levels do not meet standards.
- International Routes: In the same city, no more than two Chinese airlines are allowed to operate services. Long-haul flights will prioritize those departing from major hubs like Beijing, Shanghai, and Guangzhou.
These measures will be implemented in 2026-2027 to prevent a situation where all airlines cut prices in a bid for customers, resulting in no one making a profit.
IV. Airlines' Self-Saving Strategies
Airlines are trying alternative approaches rather than simply cutting prices:
China Southern Airlines is a good example of this approach:
- For Leisure/Tourist Customers: They increased seating capacity to reduce per-seat costs and introduced paid dining options (with 100% availability at their own outlets), catering to both those willing to spend extra for quality food and those who just want affordable meals.
- For Business Customers: In 2027, they will deploy A321 narrow-body aircraft equipped with fully flat-folding business class seats on domestic business routes. These aircraft are more cost-effective than larger models, providing a high-quality experience while controlling costs.
The core idea is that in an era of segmented consumer behavior, airlines cannot use a one-size-fits-all approach. They need to understand the needs of different customer groups—some prefer lower prices, while others are willing to pay extra for better services—and tailor their offerings accordingly to survive during off-peak periods.
Conclusion
The challenges faced by the aviation industry this summer reflect broader changes in consumer spending patterns and market structure. Airlines can no longer rely on peak seasons or government subsidies; they must adopt more refined operations and targeted services to thrive. Regulatory intervention is also necessary to prevent a destructive cycle of price cuts that harm everyone. Only those who can effectively meet the diverse needs of passengers will survive in this challenging market environment.