Aviation stocks continued their recent downward trend. At the time of writing, China Eastern Airlines (00670) fell 11.75% to HK$3.98. Air China (00753) dropped 9.66% to HK$5.33. China Southern Airlines (01055) declined 8.76% to HK$4.48. Cathay Pacific Airways (00293) decreased 6.39% to HK$12.01.
The decline is attributed to ongoing disruptions to oil transport in the Middle East. Major oil-producing nations, including Iraq and Qatar, have previously announced production cuts, leading to a continued expansion in international oil price gains. On Monday, WTI crude futures surged over 20%, which is expected to impose significant cost pressures on airlines.
Furthermore, several Middle Eastern countries have announced the closure of their airspace. Analysis from Xeneta indicates that the Middle East conflict has substantially impacted the global air freight market. Multiple airlines have been forced to suspend operations and cancel flights, directly resulting in an approximate 16% to 18% reduction in global air cargo capacity.
A previous HSBC research report stated that rising oil prices will erode profits, noting that Asian airlines are particularly sensitive to oil price increases, especially when lacking hedging. The report estimated that a 10% increase in oil prices could reduce the profits of mainland Chinese airlines by approximately 68%. Other analysts pointed out that although airlines typically engage in fuel hedging, the combination of rising fuel costs, flight cancellations, and additional expenses from rerouting continues to pose major pressures.
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