The more they fly, the more they lose! Shandong Airlines B3 revenue exceeds 20 billion yuan but still incurs a loss of 2.2 billion yuan, continuing expansion despite insolvency | Dayu Finance

Ask AI · What is the strategic logic behind expansion despite being insolvent?

Shandong Airlines, which turned thirty and is coming of age, is in a period of clearly pressured adjustment. As Shandong Province’s first homegrown airline, Shandong Airlines Co., Ltd. (abbreviated as “Shan Hang B3,” securities code: 420178) recently disclosed its 2025 annual report, showing a fairly prominent structural contrast in its operations: on the one hand, as industry demand rebounds, operating revenue has recovered to 20.194 billion yuan, returning to a scale of about 20 billion yuan; but on the other hand, the company has recorded losses for two consecutive years exceeding 2.2 billion yuan, and its asset-liability ratio has further risen to 144.06%, with its “insolvent” condition still deepening.

What draws even more attention is that even in the context of industry recovery, the company has not escaped the operating situation of “the more it flies, the more it loses”—flight volume and revenue are rising in tandem, but profitability continues to face pressure.

At the same time, performance differences between the group and the listed company have also sparked discussion in the market: in 2025, Shandong Airlines Group’s consolidated net loss was approximately 780 million yuan, while Shandong Airlines Co., Ltd.’s net loss attributable to shareholders in the same period reached 2.292 billion yuan. Under continued losses and high leverage pressure, the company is still pushing forward with external investment and fleet expansion; the operating logic behind this has become the focus of outside attention.

“Profit scissors” effect: Pressure is more concentrated on the listed entity

In terms of profit performance, Shandong Airlines Co., Ltd. has still not exited the loss zone.

In 2025, the company achieved a net profit attributable to shareholders of -2.292 billion yuan, further widening compared with -2.264 billion yuan in 2024; in 2023, although it recorded a net profit of 214 million yuan, it relied mainly on non-recurring items such as non-operating income and gains from asset disposal, so even after adjusting for non-recurring items, it remained loss-making.

By comparison, the group’s parent-level company, Shandong Airlines Group, recorded a consolidated net loss of approximately 780 million yuan in the same period, with a significantly smaller loss magnitude than the listed company. This difference reflects that within the same corporate system, the distribution of profit and risk assumption is not symmetrical.

As the operating carrier of the airline transportation core business, Shandong Airlines Co., Ltd. bears more direct operating pressure. In 2025, the company’s operating revenue was 20.194 billion yuan, up 3.10% year over year, but operating costs for the same period reached 20.260 billion yuan—its cost scale is already close to the level of revenue. Under the influence of multiple factors such as fluctuations in jet fuel prices, changes in exchange rates, and market competition, the company’s gross margin remained at -0.33%, not yet turned positive.

From the outcome, industry recovery is more reflected in the demand side rebound, but under constraints in the cost structure, the pace of profitability repair for some airlines still lags. The phenomenon of “the more it flies, the more it loses” is quite typical in Shandong Airlines Co., Ltd.

By contrast, at the group level, losses in the single airline main business are offset to a certain extent through other business segments, subsidies, or financial-structure arrangements, and overall performance volatility is also smoothed to some degree.

Financial pressure continues to build up: Leverage ratio rises to 144%

Under continued losses, the asset-liability structure of Shan Hang B3 faces additional pressure.

As of the end of 2025, the company’s net assets attributable to shareholders were -12.249 billion yuan, down further from -9.872 billion yuan at the end of 2024, and the net asset shortfall continued to widen. Meanwhile, the company’s total liabilities reached 40.050 billion yuan, while total assets were 27.801 billion yuan. The asset-liability ratio rose from 128.25% in 2023 and 135.69% in 2024 to 144.06%.

Against the backdrop of high leverage and negative net assets, the company’s funding position clearly depends on external support.

From the equity structure, Air China directly holds 22.8% of Shan Hang B3, and also indirectly holds 42% through Shandong Airlines Group, for a combined controlling proportion of 64.8%. This structure keeps the company closely tied to the Air China system in terms of funding and operations.

The annual report shows that as of the end of 2025, Shandong Airlines Co., Ltd. had outstanding entrusted loans from its controlling shareholder, Shandong Airlines Group, of 8.100 billion yuan. The company’s management stated in the report that this funding played an important role in ensuring stable cash flow and daily operations. In the current operating environment, intragroup funding support remains an important foundation for the company to keep running.

Despite insolvency, it is still expanding: Capacity and investment advance in parallel

While facing financial pressure, Shan Hang B3 has not significantly shrunk its business scale, and instead continues to push forward certain expansion measures.

On external investment, the company started a capital increase in Sichuan Airlines at the end of 2023. By the end of 2024, the actually paid-in amount was 960 million yuan; by the end of 2025 it further increased to 1.200 billion yuan. By participating in the equity of regional airlines, the company has strengthened its route layout in the Southwest market.

On capacity, the company’s fleet size has also continued to grow. The number of Boeing 737 series aircraft increased from 133 in 2023 to 137 in 2024, and reached 139 in 2025. According to its plan, the company will continue to introduce 10 aircraft of the same model through financing leases from 2026 to 2027.

Expanding continuously with negative net assets to a certain extent indicates the company’s strategic role assumed within the Air China system. Whether it is the extension of the route network or adjustments to the fleet structure, it is related to coordination with overall operations.

However, with cost pressure not yet meaningfully eased, the extent to which scale expansion improves profitability remains to be observed. Jet fuel prices, exchange-rate fluctuations, and the recovery pace of industry demand will continue to affect the company’s operations.

Revenue has recovered, but profits have not caught up. For Shandong Airlines, while maintaining its fleet scale, whether pressure on the cost side can be released and whether the “the more it flies, the more it loses” situation can be alleviated will still need to be tested over time.

Reporter: Du Lin Editor: Liu Meimei Proofreader: Wang Fei