Bloomberg Intelligence analysts are projecting that Chinese flag carrier Air China will overtake Delta as the world’s most valuable airline by market capitalization within the next three years. The forecast credits this projected increase in valuation to significant earnings growth from strong demand, higher-cost economies, and capacity increases. However, with a sliding Chinese yuan and potential issues caused by the ongoing trade war between China and the United States, Air China’s ascent to the throne may be turbulent in short-term.

Part of the reason to why Chinese airlines are projected to make more profitable quarters comes down to Beijing’s decision to allow more liberal pricing of domestic flights, as well as ditching the so-called “one route, one airline” rule which discouraged Chinese carriers from competing with one another. Chinese three most valuable airlines—Air China, China Eastern Airlines, and China Southern Airlines—are all state-owned. The fourth runner-up is troubled Hainan Airlines.

Of course, the most important driver of growth is the rapidly expanding Chinese aviation market. Previously projected to overtake the United States as the biggest aviation market by 2024, this projection has now been revised down to 2022 owing to higher than expected growth in the Chinese market and slower than expected growth in the U.S. market.

However, while the long-term forecast looks bright for China’s state-owned carriers, there’s still a lot of potential turbulence on the horizon—some to Chinese carriers’ potential benefit, and other perhaps not.

One such factor is the sliding Chinese yuan, which is particularly unpleasant for Chinese carriers as they hold significant portions of debt in dollars but with most of their revenue in yuan. Aircraft and fuel are also paid for in dollars.

Perhaps even more worrying are aircraft tariffs imposed on U.S.-manufactured planes as part of the ongoing trade war. While Chinese regulators have so far avoided tariffs that would prove especially damaging to Chinese airlines, the escalation of the trade war risks making a widening of aircraft tariffs a necessary move from Beijing as it struggles to find goods to put tariffs on. Similarly, a reduction in travel between China and the United States as a result of the trade war would likely also lower airline revenue on international routes.

The industry-wide pilot shortage and the lack of adequate pilot training facilities in China is also a cause for concern and something that risks lowering airline profitability. Capacity issues at major Chinese hubs and notoriously frequent flight delays are also factors that could put a damper on profitability.

However, in the grand scheme of things, Chinese consumers’ increasing level of affluence, growing demand for air travel, international travel, as well as a supportive (or protectionist) government are all sure factors that’ll inevitably propel Chinese state-owned airlines like Air China to new heights.

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