Dongxing: Airlines cautiously increase capacity in October, domestic passenger load factor increases compared to the previous month

Dongxing released a research report stating that there is still an oversupply situation in domestic routes, which needs to be alleviated by the restoration of international routes to take away the excess capacity accumulated domestically. Although the civil aviation industry is still under pressure to operate this year, considering the improvement in the industry fundamentals, profit performance is expected to be significantly better than last year, and will continue to recover in the future. The stock prices of several major airlines have shown a clear safety margin after a long period of adjustment, and are worth paying attention to. Event: Listed airlines released operating data for October, with airlines being cautious in capacity deployment during the short holiday period, leading to an increase in domestic route passenger load factors compared to the previous month. Dongxing's main points are as follows: Domestic routes: Airlines are cautious in capacity deployment, and domestic route passenger load factors have rebounded during the National Day holiday in October, with a short-term increase in industry demand. Airlines have been relatively cautious in capacity deployment, with an increase of around 4% compared to September. Compared to 2019, the capacity deployed in October this year is about 120% of the same period in 2019, slightly higher than the 118% in September. We believe that airlines are still concerned about the demand side of the industry in the fourth quarter, hence maintaining a cautious style of capacity deployment. With the recovery in international routes, the pressure of excess capacity on domestic routes has been somewhat relieved. It can be seen that several airlines deployed lower capacity in 4-6 months and 9-10 months (off-season periods) compared to the same period last year. This indicates that there is still an oversupply on the supply side of domestic routes, and at the same time, excess capacity is gradually being diverted outward. However, as the capacity deployment on international routes has also hit a bottleneck after July, with limited increase, the oversupply pressure on domestic routes is still unresolved in the short term, and the industry is likely to continue to be under pressure during the off-season in the fourth quarter. In terms of passenger load factors, there was a significant increase in October airline load factors compared to the previous month. On one hand, the National Day holiday brought a short-term increase in demand, and on the other hand, the airlines' proactive shrinkage in capacity deployment to ensure load factors has had a certain effect. The overall load factor of listed airlines increased by about 2.1 percentage points compared to September, and was higher than the same period in 2019 by 2.2 percentage points. In terms of year-on-year comparison, Eastern and Southern Airlines had the most significant increase in load factor compared to 2019, exceeding 3 percentage points; compared to the previous month, Air China's load factor increased by 3.6 percentage points, a significant increase compared to other airlines. Spring Airlines had a smaller increase in load factor, mainly because its load factor was already high and had limited room for improvement. International routes: There is a significant difference in load factors among airlines, with the demand side hitting a bottleneck phase in international routes. In October, the capacity deployment of listed airlines on international routes was about 92% of the same period in 2019, with an increase of about 2.2% compared to September. In terms of load factors, the load factor in October decreased by 0.4 percentage points compared to September, but increased by 1.0 percentage points compared to the same period in 2019. Since July, the growth rate of capacity deployment on international routes has slowed significantly, with the bottleneck on the demand side making it difficult for the supply side to continue increasing capacity deployment. Looking at individual airlines, there was a significant difference in performance in October. Spring Airlines and Lucky Air had a noticeable increase in capacity deployment compared to the previous month, mainly for short-haul international travel during the National Day holiday. However, Spring Airlines' load factor decreased for two consecutive months, indicating that there is an oversupply on nearby international routes. As for the major airlines, their capacity deployment slightly increased while load factors decreased slightly. Hainan Airlines saw a decrease in capacity deployment but an increase in load factor. The capacity deployment and load factors of major airlines were fluctuating, indicating that there is currently a bottleneck in demand for international routes. Risk factors: Macroeconomic downturn; changes in civil aviation policies; safety accidents; significant fluctuations in oil prices and exchange rates; abnormal weather factors, etc.