China Eastern Airlines (0670.HK) (600115.SS), one of China's top three carriers, said it would delay the launch of a new route between Shanghai and Sendai, which was scheduled to start on October 18, due to insufficient passenger demand.

A China Eastern spokesman declined to say if the delay was related to the growing tension between the two sides, but he warned the situation could deteriorate.

"Other flights (to Japan) are now operating as normal, but we expect those flights will be affected too," a China Eastern spokesman said in an email to Reuters.

Japan Airlines Co Ltd JAL.L (9201.T) said it would reduce daily flights to China, excluding Hong Kong, by three to 10 until October 27, while the Nikkei business daily said JAL had about 12,000 cancellations to China on flights between September and November, including 5,500 seats cancelled flying out of Japan and 6,500 seats cancelled from China.

"JAL doesn't see a very large impact on earnings from this," JAL spokesman Seiji Takamoto said. "China-Japan flights make up little more than 10 pct of international flight sales, and the impact on overall profits is small."

New reservation volume had dropped and JAL would gauge demand in October and decide whether to extend the flight cuts beyond October 27, Takamoto added.

All Nippon Airways (9202.T) ANA.L said it was monitoring the situation closely.

"We are doing all we can to avoid cutting flights, but an announcement could come at any time, given the level of cancellations," an ANA spokesman said.

The Hong Kong-listed Shares of China Eastern fell 1.6 percent on Friday, lagging a 0.7 percent gain in the broader market .HSI.

The Hong Kong-listed shares of Air China (0753.HK)(601111.SS) rose 3.6 percent, while China Southern Airlines Co Ltd (1055.HK)(600029.SS) was flat.

JAL shares fell 4.3 percent and ANA was flat, compared with a 0.3 percent gain in the Nikkei 225 Index .N225.

Street protests in China have forced some Japanese firms to suspend operations in that country, and the share prices of Japanese firms with exposure to China have tumbled.

Japan has controlled the disputed rocky islets since 1895 - except during the 1945-1972 U.S. post-war occupation of Okinawa - and calls them the Senkakus. China maintains it has an older claim and calls them the Diaoyu islands. (Reporting Donny Kwok in HONG KONG and Negishi Mayumi in TOKYO; Editing by Anne Marie Roantree)

• A Permanent Economic Emergency