Sinolink: Holidays will increase by 2 days in 2025, benefiting the travel chain sector.

Sinolink released a research report stating that there will be an additional 2 days of holidays in 2025, which will help drive the demand growth for civil aviation and high-speed rail travel. It is recommended to focus on the travel sector. Currently, the balance between supply and demand in the aviation sector will improve, and a turning point in supply and demand can be expected. If demand improves, optimizing supply and demand will drive ticket prices up. Due to capacity constraints from aircraft manufacturers and upstream component suppliers, the growth rate of the aircraft industry will slow down in the future. Coupled with the market-oriented pricing of tickets, airlines' profit elasticity will be released. The aviation sector has a high beta, with significant excess returns in a bull market. Focus on the three major airline stocks listed in Hong Kong with lower valuations. Events: On November 12th, the State Council announced the decision to amend the "National Holiday and Memorial Day Holiday Regulations," which will come into effect on January 1, 2025. The decision specifies that all citizens will have 2 additional days off, namely Lunar New Year's Eve and May 2nd. By allowing for longer holidays, consumers can plan longer trips, stimulating the demand for air travel and high-speed rail. According to historical data, the aviation market performs well during peak seasons. For example, during the 2024 National Day holiday, the national civil aviation industry transported nearly 16.1 million passengers, with an average of 2.3 million passengers per day, an increase of 22% compared to the 2019 National Day holiday and 11% compared to the 2023 Mid-Autumn National Day holiday, a growth rate higher than the annual average. Sinolink's main points are as follows: The 2-day increase in holidays in 2025 will help drive the demand for civil aviation and high-speed rail travel. The demand for civil aviation passenger traffic in China from January to September increased by 11% compared to 2019. The industry has already recovered its natural growth by September, and it is expected that the overall civil aviation passenger traffic will continue to grow at a high single-digit rate in the future. On the supply side, the fleet growth rate of major airlines since 2024 has been only 1.6%. It is estimated that by the end of 2024, the number of airlines' fleets will have accumulated only a 14% increase from 2019, due to capacity issues with aircraft and engine manufacturers, the future growth of aircraft numbers is expected to remain in the low single digits. Since the end of September, several policies have been introduced to stimulate consumption. As air travel is considered an optional consumer product, increased consumer purchasing power or restored confidence will create demand for travel. Supply and demand optimization is expected to accelerate, leading to a turning point in 2025. Supply and demand optimization combined with cost improvements are expected to significantly boost airlines' performance. In addition, cost reductions will increase profits. Fuel costs account for about three to four percent of airlines' costs, and on November 11th, Brent crude oil futures closed at $71.83 per barrel, a 4% decrease from the previous period. This will reduce airlines' fuel costs, with a 1% oil price change reducing fuel costs by 4-5 billion. A decrease in oil prices will release short-term profits. Investment recommendations and valuations: Recommend focusing on the travel sector with investments in Air China Limited (00753), China Southern Airlines (01055), Spring Airlines (601021.SH), Juneyao Airlines (603885.SH), and Beijing-Shanghai High-Speed Railway (601816.SH). Risk warnings: Risks of a significant increase in oil prices, risks of renminbi depreciation, risks of macroeconomic underperformance.