Zhongtai: The peak season of summer travel for airlines has come to an end, with the Mid-Autumn Festival and National Day holidays expected to bring sustained positive demand.

Zhongtai released a research report stating that as the peak summer travel season comes to an end, the civil aviation market may temporarily enter the off-peak season. However, the upcoming Mid-Autumn Festival and National Day holidays are expected to bring sustained demand benefits to the aviation market. In addition, the recent continuous decline in Brent crude oil prices and the strengthening of the renminbi exchange rate are expected to alleviate cost pressures on airlines. In the long term, the industry's supply and demand structure is expected to continue to improve, with airlines' aircraft utilization rates expected to continue to recover, and cost per seat kilometer expected to continue to decrease, thereby driving continuous improvement in performance. In 2024, the peak summer travel season came to a close with a record high passenger traffic volume, but overall ticket prices remained under pressure. During this year's summer travel season (July 1st to August 31st), a total of 140 million passengers were transported by civil aviation, with a daily average of 2.289 million passengers, an increase of 17.7% from 2019 and 12.3% from 2023. However, the average ticket price (excluding taxes) for domestic flights during the summer travel season was down by approximately 10.7% compared to the same period last year. In terms of passenger demographics, the number of child passengers aged 0-12 increased by nearly 20% during this year's summer travel season, while the proportion of elderly passengers returned to the 2019 level. In August, the total flight volume in the industry in 2024 recovered to 110% of the level of the same period in 2019, with domestic, international, and regional flight volumes recovering to 117%, 79%, and 74% respectively. In the mid-year of 2024, there was a divergence in performance among companies in the aviation sector, with airport and private small airlines overall profitable in the first half of the year, while major airlines were still incurring losses. As the aviation sector's business fundamentals have basically returned to the level of 2019, companies in the airport sector achieved overall profitability in the first half of the year. On the airline side, due to entering the off-peak season in Q2, airfare prices were under pressure, leading to a slight decline in operating revenue for airlines compared to Q1. However, factors such as rising aviation fuel prices resulted in a smaller decline in operating costs, putting pressure on the profit side, and the gross profit margin level in Q2 of 2024 decreased compared to the previous quarter. Overview of listed airlines and airports in July. In terms of airlines, the six listed airlines saw a net increase of 1 aircraft in July, benefiting from the peak summer season, with each airline experiencing growth in passenger ASK and RPK on a month-on-month basis. Hainan Airlines Holding had the highest month-on-month increase in passenger ASK (25.96%) and RPK (28.74%), with Spring Airlines maintaining a leading seat occupancy rate. As for airports, in July 2024, the passenger traffic at Shenzhen Bao'an, Haikou Meilan, Guangzhou Baiyun, Shanghai Pudong, Xiamen International Airport, and Beijing Capital recovered to 119%, 111%, 107%, 104%, 99%, and 67% of the level of the same period in 2019, respectively. The flight volume at these airports in July 2024 recovered to 119%, 116%, 107%, 106%, 98%, and 74% of the level of the same period in 2019, respectively. Operational differentiation gradually emerged, with small and extraordinary private airlines. In the first half of 2024, performance among airline companies in the sector diverged, with Spring Airlines, Juneyao Airlines, China Express Airlines achieving profitability. Zhongtai believes that against the backdrop of moderating economic growth momentum and a trend towards rational consumer behavior, low-cost airlines such as Spring Airlines and Juneyao Airlines under nineair, are expected to benefit; benefiting from the new "Provisional Measures for Subsidies for Regional Air Transport," China Express Airlines saw a high year-on-year increase in subsidy income, driving steady growth in its performance. Targets: It is recommended to focus on China Express Airlines, which has stronger certainty of marginal improvement and benefits from the policies of regional subsidies, as well as Spring Airlines (601021.SH) and Juneyao Airlines (603885.SH) with strong performance certainty. Attention is also advised on the three major airlines, Shanghai International Airport (600009.SH), and Citic Offshore Helicopter (000099.SZ), which benefit from favorable policies for low-altitude economy. Risk warnings: Risks of macroeconomic downturn, rising oil prices, exchange rate fluctuations, and risks of outdated information and data in the research report.