Chinese carriers are struggling with the financial strain imposed by declining domestic demand and surging fuel costs and have turned to new financing in an effort to reduce the burden.

In order to replenish working capital and alleviate debt, Hainan Airlines announced it will circulate CNY2.7 billion ($393.5 million) in corporate bonds while China Southern Airlines plans to circulate CNY8 billion worth of commercial paper and CNY1.5 billion in medium-term notes to increase cash flow. Air China was approved to circulate an additional 400 million A shares that will be worth CNY4 billion based on the current share price. It noted that it will take CNY1.5 billion as working capital while the rest will fund its acquisition of 15 787s, 24 A320s and 15 737s.

Industry analysts have pointed out that airlines can overcome short-term financial difficulties through these initiatives but that they will do little to sustain their long-term growth unless the domestic market recovers.

According to CAAC, Chinese carriers continued their negative growth in June. Total passenger boardings were 14.2 million, down 3.8% year-over-year. Cargo volume dipped 0.8% to 321,475 tonnes.

Industrial Securities aviation analyst Xia Fulu painted a gloomy picture for the industry. In addition to fuel, "labor costs will also be increasing as they will be geared to international standards, which is expected to exert a negative impact on domestic carriers' financial performance in the second half of this year," he predicted.