Turning the Tide to Lead: 857 Million Yuan Net Profit Reverses Losses | Understanding China Southern Airlines Part 1

Ask AI · How does China Southern Airlines achieve profitability turnaround through lean cost management?

Southern Finance Reporter Zhu Zhixuan, Guangzhou Report

Over the past few years, China’s civil aviation industry has experienced a downturn, with overall profitability under pressure, as most airlines struggle amid supply-demand imbalances and fluctuating costs.

In this long-distance race through the cycle, China Southern Airlines took the lead, delivering an impressive annual report for 2025 with total revenue exceeding 182.2 billion yuan and a net profit attributable to the parent of 857 million yuan. It became the only airline among the “Big Three” to achieve full-year profitability and an important window into China’s aviation recovery and macroeconomic vitality.

While China Southern Airlines delivered a stellar performance, new cost challenges have already emerged. Affected by recent macro factors such as turbulence in the Middle East, international oil prices have oscillated upward. Airlines like Air China, China Southern, and China United Airlines increased fuel surcharges on mainland China routes starting from 0:00 on April 5. The specific standards are: 60 yuan per segment for routes within 800 km (inclusive), and 120 yuan per segment for routes over 800 km. Although this move is a direct measure to hedge rising fuel costs, it also adds a game of margins to the demand-side recovery.

On April 8, China Southern Airlines’ stock price surged immediately after opening, nearly hitting the daily limit, closing at 6.05 yuan, up 7.84% from the previous trading day, with a transaction volume of 1.38B yuan, and its total market value rose to 109.6 billion yuan.

Performance reversal, first full-year profit in six years

From a capital market perspective, this performance reversal is highly significant. Industry data shows that China’s civil aviation total transportation turnover increased by 10.5% year-on-year, passenger transport volume grew by 550 million passenger trips (5.5%), and cargo and mail transportation increased by 13.3%. The core issue of long-term undervaluation of airline stocks post-pandemic has been persistent profitability, and China Southern’s early profitability confirms that the industry cycle has bottomed out, providing a solid anchor for sector valuation recovery.

Profitability turning positive essentially reflects China Southern’s systematic realization of full-chain operational capabilities, from capacity decisions and cost control to business layout. Compared to a net loss of 1.7B yuan in 2024, it achieved a profit increase of 2.55B yuan year-on-year, marking a remarkable turnaround in the civil aviation industry.

The value of this performance lies in the fundamental recovery of the core business’s blood-making ability. China Southern not only achieved a net profit attributable to the parent turning profitable but also reached a non-recurring net profit of 145 million yuan. The quarterly profit curve more vividly reflects the normalization of operational fundamentals: Q1 and Q2, traditionally off-peak seasons, posted losses of 747 million yuan and 786 million yuan respectively; Q3, the peak season, saw a profit explosion of 3.84 billion yuan; Q4, the traditional off-season, saw a significant reduction in losses by 60.4% year-on-year to 1.45 billion yuan. This pattern of “profitable peak seasons and controlled off-peak losses” is a normal business cycle in aviation, indicating the company has fully shaken off pandemic impacts and returned to healthy commercial operations.

Guolian Minsheng Securities research report pointed out that China Southern Airlines’ operating performance in Q4 2025 significantly improved year-on-year. On domestic routes, revenue per passenger kilometer stabilized, and increased seat occupancy rates drove revenue per seat kilometer improvement. International capacity grew by over 10% year-on-year, with both seat occupancy and revenue per passenger kilometer also rising, showing a simultaneous increase in volume and price. After years of declining ticket prices domestically, the company’s net profit attributable to the parent has already returned to pre-2019 levels in Q4, with a notable recovery effect.

Precise capacity deployment is a direct reflection of China Southern’s operational capability. In 2025, the airline adhered to the principle of “demand matching and value prioritization” in capacity deployment, with overall available seat kilometers (ASK) increasing by 6.57% year-on-year, and revenue passenger kilometers (RPK) increasing by 8.28%. Market demand growth outpaced capacity deployment, directly boosting the overall passenger load factor by 1.36 percentage points to 85.74%, approaching the peak levels of the pre-pandemic industry cycle.

CITIC Securities pointed out that by the end of 2025, China Southern’s fleet size was 972 aircraft, a modest increase of 6% from the previous year. The aircraft growth plan for 2026–2028 projects a minimum annual growth rate of only 1.68%. The restraint and precision in capacity deployment have laid a solid foundation for profitability recovery.

Lean cost management across the entire chain is key to restoring profits. As the airline’s largest cost item, fuel costs are particularly noteworthy. In 2025, China Southern’s total fuel expenditure was 52.53B yuan, down 4.48% year-on-year. Zhongtai Securities calculated that the airline’s fuel cost per passenger kilometer was 0.1359 yuan, a 10.37% decrease year-on-year.

Financial optimization further expanded profit margins. The company’s total financial expenses decreased significantly by 24.05% year-on-year, with exchange gains of 345 million yuan, turning losses into gains and increasing profit by 1.26B yuan compared to the previous year. Through debt structure optimization and exchange rate hedging, the company effectively managed financial risks and continuously reduced financial costs amid currency fluctuations.

The dual-driven business model of passenger and cargo provides a solid ballast for profitability resilience. In passenger transport, revenue reached 153.64B yuan in 2025, up 4.91% year-on-year, accounting for 87.12% of main business income, forming the foundation of profit recovery. Cargo and mail transportation revenue was 19.67 billion yuan, up 5.22%, maintaining high gross margins despite global cargo market volatility. Notably, China Southern Logistics, holding a 55% stake, achieved a net profit of 3.58B yuan, contributing stable income to the listed company. The coordinated passenger-cargo business layout allows the airline to unleash profit potential during peak seasons and smooth out cycles through cargo operations during market fluctuations—an important support for achieving full-year profitability.

CITIC Securities noted that China Southern Airlines actively adjusted its operational strategies in response to market changes, focusing on quality and efficiency improvements to turn losses into profits. The rapid growth in international capacity and revenue passenger kilometers was a highlight. Huatai Securities analyzed that improvements in fuel costs and financial expenses were the main drivers for the significant narrowing of losses in Q4, and the full-year profit turnaround confirmed an upward trend from the industry bottom.

Easm Media CEO Zhang Yi told Southern Finance that China Southern Airlines, as the first among the “Big Three” to turn profitable, owes its core driving force to a stable domestic route network, a steady recovery of international routes, and excellent cost control. These measures not only made China Southern the only large airline among the three to achieve a profit turnaround but also marked China’s aviation industry stepping out of a deep loss cycle into a phase of substantial recovery. The profit reversal of China Southern is also a microcosm of other airlines gradually resuming profitability.

Open dividends and industry secrets in financial reports

If the profitability achievement alone confirms China Southern’s operational strength, then the explosive growth of international routes and the resilience of air logistics in 2025 go beyond individual companies, reflecting the dividends of higher-level national opening-up and the structural opportunities created by global supply chain reconfiguration.

In 2025, China continued to expand its visa-free “friendship circles,” reaching mutual visa exemption agreements with multiple countries, simplifying entry and exit procedures, and significantly reducing institutional barriers to cross-border travel. This directly triggered a surge in outbound and inbound tourism and business travel. Data shows that in 2025, China Southern’s international route passenger volume reached 21.1M, a substantial increase of 19.53% year-on-year, and international route revenue grew by 15.15%, far surpassing domestic market growth, becoming the core engine of revenue and profit growth, demonstrating the effectiveness of high-level opening-up.

To capitalize on this policy dividend, China Southern Airlines precisely deployed its international route network. By the end of 2025, it operated a global route network covering Asia and effectively radiating to Europe, America, Australia, and Africa, with 57 overseas offices. Especially in markets benefiting from visa-free policies such as Southeast Asia, Northeast Asia, and Europe, the airline gained a first-mover advantage. During the reporting period, flights along the “Belt and Road” increased by 15.4% year-on-year. New routes such as Guangzhou–Madrid, Guangzhou–Darwin, and Fuzhou–Nagoya were added, increasing flight frequency to key visa-free cities. Additionally, 11 overseas hubs launched integrated ticketing and baggage services, continuously strengthening international transfer hub capacity. The number of transfer passengers at Guangzhou and Beijing hubs increased by 19.2% and 3.8% respectively, with international transfer passenger share steadily rising.

If passenger transport is the “face” of China Southern’s fundamental recovery, then cargo operations provide a highly cyclical-resistant “core.”

In recent years, high-end manufacturing exports such as new energy vehicles, lithium batteries, and photovoltaic products have become China’s key growth engines. These products require high added value, high timeliness, and high safety standards, significantly increasing reliance on air cargo. This trend greatly benefits large airlines with extensive trunk capacity and dense global networks.

China Southern precisely grasped this industry trend by launching new products like integrated air-land container transfers, creating differentiated competitive advantages. It also innovated at Baiyun Airport by establishing China’s first dual-front inspection and customs clearance system, improving cross-border logistics efficiency. In 2025, cargo and mail turnover increased by 6.29% year-on-year, reflecting the vitality of China’s export economy in aviation logistics. Huatai Securities pointed out that the resilience of cargo operations and the advantage of trunk capacity will continue to benefit the supply chain under stable demand.

Looking ahead to 2026, the industry fundamentals still have a solid foundation for recovery. Guolian Minsheng Securities believes that domestic routes may shift from volume-based to value-based growth, with demand bottoming out and the potential for price increases as supply-demand gaps widen. The sharp rise in fuel prices in April presents a “stress test” for pricing power, and attention should be paid to feedback on price increases, oil price fluctuations, and the central level of oil prices. Maintaining a “buy” rating is recommended.

Based on slowing supply growth, high passenger load factors, and expectations of internal industry competition easing, Zhongtai Securities believes that industry prosperity may rebound in 2026. However, geopolitical tensions in the Middle East have increased fuel cost pressures, leading to downward revisions of profit forecasts for 2026–2027 and an upgrade to “accumulate” on investment ratings. Huatai Securities also monitors oil price volatility, lowering profit forecasts but maintaining a “buy” rating, emphasizing that long-term industry discipline could push the bottom of the cycle upward.

Regarding the impact of the fuel surcharge increase, Zhang Yi said that the rise in fuel prices in April drove the surcharge adjustment, which is essentially a cost pass-through. It can provide some buffer but cannot fully cover the increased fuel costs. For passenger travel, business trips are usually less affected, but leisure and visiting relatives demand may be somewhat suppressed, with some short- and medium-haul travelers shifting to high-speed rail. Therefore, the recovery pace in Q2’s off-peak season might slow temporarily. Overall, this is a short-term disturbance and will not change the overall upward trend of aviation industry recovery. During the summer peak season, higher travel enthusiasm will be stimulated, and demand resilience will support continued industry recovery.

The three major brokerages are optimistic about the long-term upward trend of the industry, relying on the strong recovery of domestic passenger flows, the continued release of international route opening dividends, and the core logistics value supporting China’s high-end manufacturing exports. China Southern Airlines’ profitability and return on equity (ROE) are expected to be revalued and broken through in the new upward cycle of civil aviation.