Guotai Junan: Spring Festival travel presale to start soon, industry expects supply and demand to be optimistic.

Guotai Junan Securities released a research report stating that the Spring Festival holiday in 2025 will be extended and can be combined with a longer holiday. It is expected that there will be strong demand for air travel and limited overtime, with the industry anticipating an optimistic supply and demand situation, combined with improved pressure on oil prices, which is expected to exceed profit elasticity. The following is a summary of the research report: 1. Aviation with long logic, Spring Festival may catalyze optimistic expectations, maintaining a hold rating on aviation Chinese aviation has a long logic of exceeding profit expectations, and the trend of supply and demand recovery in 2025 is confirmed. Considering the market-oriented ticket prices and significant slowdown in fleet growth, it is expected to start a profit upswing. It is expected that the demand for air travel during the 2025 Spring Festival will be strong, and the availability of overtime flights will be limited. The industry expects an optimistic supply and demand situation, combined with improved pressure on oil prices, is expected to demonstrate exceeding profit elasticity and catalyze optimistic expectations. Market expectations for the long logic of aviation are still low, with greater room for divergence. 2. Aviation passenger traffic: Expect strong demand during the Spring Festival, with passenger traffic reaching new highs As the second normalized Spring Festival after the pandemic in 2025, the Spring Festival holiday is extended by one day and can be combined with a longer holiday. It is expected that there will be strong demand for travel during the Spring Festival, and civil aviation passenger traffic may reach a new historical high. 1) Before the festival: "2025 Spring Festival" will start on January 14, 2025 (fifteen days before the Spring Festival), and in fact, ticket pre-sales started in mid-December 2024, with a significant increase compared to the same period. Due to the early Chinese New Year in 2025, it is expected that pre-holiday ice and snow tours/student holidays/reunion visits/business and commercial flows will overlap, which will help airlines with revenue management. 2) During the festival: the extended holiday and effect of combining holidays will ensure continued strong demand for travel during the Golden Week, with the possibility of a second wave of large-scale travel, and no significant lull during the festival. 3) After the festival: it is expected that the return traffic flow will be relatively dispersed. 3. Airline revenue management: Positive changes have been made, and the market-oriented pricing effect will reappear In 2020, the market-oriented pricing mechanism for civil aviation tickets in China was basically improved, with the weighted full fare of the top 100 routes in the "14th Five-Year Plan" increasing by more than 40% compared to 2019. Market-oriented pricing will release the suppressed space for price increases in peak seasons, and is the core driver for the upsurge in ticket prices. In 2023, the airlines implemented "price first", and the market-oriented pricing effect has been initially demonstrated; in 2024, it shifted to "load factor first", and fleet turnover and load factor have basically recovered. It is expected that the airline revenue management strategy will actively change in 2025, and price repair is already an industry consensus. The industry expects that there will be limited overtime flights during the 2025 Spring Festival, with optimistic supply and demand expectations. According to our observation, ticket prices started rising last week, and the positive changes in airline revenue management strategies will help to demonstrate the market-oriented pricing effect of the Spring Festival again. It is worth noting that the high base of ticket prices during the 2024 Spring Festival, as well as the decline in oil prices and fuel surcharges, may result in a year-on-year decrease in ticket prices during the Spring Festival (including fuel surcharges), so it is recommended to pay attention to the trend of "deducting fuel prices" (ticket prices minus average fuel costs per person), which will more accurately reflect the profit trend. 4. The trend of supply and demand recovery in 2025 is confirmed, and the upward trend of profit center is expected to start In 2023-2024, the supply and demand of China's aviation industry continued to recover, and airlines continued to reduce losses, confirming the logic of rising ticket prices and profit centers. Looking ahead to 2025, the trend of continuing supply and demand recovery is confirmed, and the upward trend of profit centers will begin. 1) Supply side: International flights continue to absorb capacity. The proportion of wide-body aircraft in the industry is decreasing, and the trend of reducing domestic flights and increasing international flights will continue to improve the problem of mismatching wide-body aircraft. In addition to the visa-free policy favoring international flight increases, it will accelerate the absorption of excess domestic capacity. 2) Demand side: China's aviation consumption is still in the early stage, with resilient demand and internal growth momentum, offering enormous long-term potential. The growth rate of aviation demand rebounded in 2024, and policy support is expected in 2025. 3) It is expected that the airline revenue management strategy will actively change in 2025, and is expected to accelerate the upward movement of the profit center. 5. Risk warning Economic conditions, oil prices and exchange rates, policies, dilution from additional issuances, safety accidents, etc.