Guotai Junan: The aviation industry's profit center is unexpectedly rising, and the Spring Festival rush may catalyze optimistic expectations.

Guotai Junan released a research report stating that the Chinese aviation industry has a strong profit potential that is exceeding expectations. By 2025, the trend of supply and demand recovery is expected to be confirmed, considering the marketization of ticket prices and a significant slowdown in fleet expansion, which is expected to open up a higher profit potential. It is predicted that the demand for the Spring Festival travel season in 2025 will be strong and domestic flight frequency will be limited. The industry has optimistic expectations for supply and demand, and with the improvement in oil prices, there is potential to show better-than-expected profit elasticity, catalyzing optimistic expectations. The market's expectations for the long-term prospects of the aviation industry are still low, and the greater the divergence, the greater the potential. The main points of Guotai Junan are as follows: Optimistic expectations for the Spring Festival travel season: Strong demand for the Spring Festival travel season, with limited domestic flight frequency. The 2025 Spring Festival travel season, as the second normalized Spring Festival after the epidemic, will have an additional day for the holiday, allowing for a longer vacation. It is expected that there will be strong travel demand, and the passenger volume of civil aviation may reach a new historical high. In terms of passenger flow, it is expected that before the holiday, there will be an overlap of ice and snow tours/student vacations/family visits/winter travel, with the peak passenger flow expected to occur from January 18 to 25; there should be no significant lull during the festival; the return passenger flow will be dispersed. Overtime flights are usually arranged during peak seasons to meet demand, and it is expected that there will still be overtime flights during the 2025 Spring Festival travel season. The industry expects that there will be limited domestic overtime flights for the 2025 Spring Festival, with the main focus on international routes such as Northeast Asia and Southeast Asia. According to Flight Master data, last week, flights to Japan/Thailand have resumed to 79%/76% of the levels during the same period in 2019, there is still room for additional flights, and the long holiday is expected to benefit outbound tourism. Tracking of Spring Festival travel season pre-sales: Pre-sales progress is gradually accelerating, and airlines' pre-sale strategies are active. As the 2025 Spring Festival falls earlier, Spring Festival travel season pre-sales actually started in mid-December 2024. Pre-sales have accelerated further over the past week compared to the same lunar period in 2024. The current pre-sales ratio is about thirty percent, with ticket pre-sales set to further accelerate after the railways open pre-sales for the first day of the Spring Festival on December 31, 2024 (January 14). The pre-sales volume and price trends will be more indicative. Considering that ticket prices in the Chinese aviation market have already been largely marketized in the past few years, this means that the previously suppressed price increase during peak seasons may be released. Currently, the industry has optimistic expectations for the Spring Festival, with some airlines continuing the active pricing strategies from the 2024 Spring Festival. With higher baseline ticket prices for domestic flights during the 2024 Spring Festival, active pricing strategies are expected to help demonstrate the marketization effect of ticket prices during the 2025 Spring Festival travel season once again. The possibility of a decline in fuel surcharges may lead to a year-on-year decline in ticket prices for the Spring Festival, and it is recommended to focus on Guojun Transport's "deducted fuel price" (ticket price deducted by per capita fuel costs), which will more accurately reflect the profit trend of airlines. Airlines' revenue strategy shows signs of positive changes during the off-season, and is expected to accelerate the rise in profit potential. From 2023 to 2024, the Chinese aviation industry has continued to recover in terms of supply and demand, validating the logic of rising ticket prices and profit potential. Looking ahead to 2025, the trend of supply and demand recovery is confirmed, and the rise in profit potential is expected to begin. 1) Supply side: The trend of reducing domestic flights and increasing international flights in China continues, and the visa-free policy is expected to accelerate the resolution of wide-body aircraft mismatch issues and the digestion of excess domestic capacity. 2) Demand side: Chinese air travel consumption is still in its early stages, with resilient demand and internal growth momentum, expecting policies to boost in 2025. 3) Revenue strategy: Positive changes have been seen in the early off-season of December, with passenger load factor decline and significant increase in ticket prices. A positive strategy will benefit the performance of the Spring Festival peak season and is expected to accelerate the rise in profit potential in 2025. Risk warning: Economic fluctuations, policies, oil prices and exchange rates, dilution from additional issuance, safety accidents, etc.