Airline stocks are under pressure in Hong Kong trading, with China Eastern Airlines Corporation Ltd (00670) falling 3.72% to HKD 3.11, Air China Ltd (00753) dropping 2.57% to HKD 4.17, and China Southern Airlines Company Ltd (01055) declining 2.89% to HKD 3.36. Cathay Pacific Airways Ltd (00293) also slipped 1.34% to HKD 14.77.

On the news front, volatility in the Middle East situation continues to keep jet fuel costs elevated for airlines. A research note from China Merchants Securities suggests that near-term uncertainties surrounding US-Iran tensions and Strait of Hormuz transit conditions could impact oil prices and sector sentiment. The brokerage notes that the current market capitalization of the sector remains near pandemic-era lows, suggesting that any easing of cost pressures could unlock significant upside potential for both earnings and valuations.

Notably, preliminary earnings results indicate that the five major Chinese carriers reversed their first-quarter profitability, reporting losses across the board in the second quarter. China Southern Airlines expects a net loss of RMB 3.473 billion to RMB 3.973 billion for the first half of the year. Air China forecasts a loss of RMB 2.1 billion to RMB 2.6 billion, while China Eastern Airlines projects a loss of RMB 1.8 billion to RMB 2.4 billion. Combined, the "Big Three" airlines face losses totaling between RMB 7.373 billion and RMB 8.973 billion, with the scale of losses widening compared to the same period in 2025.