Goldman Sachs: Chinese airlines’ capacity remains tight, but high jet fuel costs weigh on earnings for longer

Why will jet fuel pressure persist as crude oil falls?

Goldman Sachs expects average Brent crude prices to fall from 95 dollars per barrel in the fourth quarter of 2026 to 80 dollars in 2027 and 75 dollars in 2028; but tight refining capacity outside China, refinery shutdowns and low refined-product inventories will continue to support the jet fuel premium over crude.
The bank raised its Singapore jet fuel price forecasts for 2026–2028 to 144, 120 and 100 dollars per barrel, respectively, from 137, 99 and 90 dollars; it consequently raised its airline fuel cost forecasts for those years by an average of 9%, 18% and 6%, respectively.
Goldman Sachs calculates that Chinese airlines would need to raise fares by 18% to fully pass on the increase in jet fuel costs; but its sensitivity analysis shows that each 1% rise in fares would reduce passenger traffic by about 1.5%, forcing airlines to trade off absorbing costs against retaining passengers.

In the third quarter of 2026, revenue passenger kilometres at Air China, China Eastern Airlines, China Southern Airlines and Spring Airlines grew 5%–11% year on year, but higher fuel costs drove up total unit costs by about 10%–12%, and fare increases were insufficient to cover the additional burden.
The four companies’ recurring net results for the quarter were a profit of 63 million yuan, a loss of 59 million yuan, a loss of 880 million yuan and a profit of 791 million yuan, respectively; a year earlier, they had reported profits of 3.7 billion, 3.2 billion, 3.5 billion and 1.2 billion yuan, respectively.
Passenger traffic during the National Day Golden Week rose 1.7% year on year, below the 4% expected by the Civil Aviation Administration and DAST, and slower than the 4.5% recorded during the 2026 summer travel season. Domestic economy fares including fuel surcharges rose 9.5% year on year; Goldman Sachs estimates the increase in jet fuel costs was equivalent to about 15% of fares, so fare increases were still insufficient to offset costs.

Aircraft delivery delays lead Goldman Sachs to forecast industry available seat capacity growth of 2.4% and 2.2% year on year in 2026 and 2027, respectively, below its passenger traffic growth forecasts of 2.5% and 2.8%; the latter already account for the dampening effect of higher fares on demand. The bank therefore expects industry demand to continue to slightly exceed supply.
But slower fleet renewal also means higher maintenance spending. Goldman Sachs expects the average fleet age of the three major airlines to rise from 9.3 years in 2025 to 10.3 years in 2028; Air China’s is expected to rise from 10.4 to 11.5 years over the same period, and its maintenance expenses already account for 8%–9% of revenue.
High jet fuel costs could also weaken operating cash flow, while aircraft purchases and fleet renewal still require funding. Goldman Sachs expects the three major airlines’ net gearing ratios to rebound to about 500% in 2026–2027; if cash flow and balance sheets deteriorate more than expected, financing could dilute equity.

Goldman Sachs expects each of the three major airlines to post a net loss of 7.2 billion–9.9 billion yuan in 2026 and 700 million–2.5 billion yuan in 2027. The bank’s view for 2027 is more pessimistic than market consensus: Visible Alpha consensus as of 20 October 2026 expected all three companies to be profitable that year.
Even though Goldman Sachs expects jet fuel prices to fall to 100 dollars per barrel in 2028, it has cut its earnings forecasts for the three major airlines that year by 40%–46% from its previous estimates. Earnings forecasts could have upside if jet fuel prices fall faster.
Goldman Sachs downgraded the A and H shares of Air China and China Southern Airlines to sell and those of China Eastern Airlines to neutral; it maintained its buy rating on Spring Airlines.

Based on OAG seat data, Goldman Sachs estimates that the three major airlines passed through 44%–46% of fuel costs in October 2026, compared with 71% for Spring Airlines. Since the outbreak of the Iran conflict, domestic fuel surcharges are expected to cover about half of the three major airlines’ incremental fuel costs, versus 83% for Spring Airlines.
Spring Airlines has also controlled non-fuel costs relatively well: its non-fuel unit cost fell about 3% year on year in the third quarter of 2026. Nevertheless, Goldman Sachs cut its 2027 adjusted net profit forecast for the airline from 3.1 billion yuan to 2.3 billion yuan, citing factors including higher jet fuel costs.
Among the three major airlines, Goldman Sachs believes China Eastern Airlines has a higher share of international business and could benefit from faster international passenger growth and stronger fares; China Southern Airlines is more sensitive to oil prices, while Air China faces a heavier fleet maintenance burden.