Guotai Junan: Spring transport passenger flow expected to reach a new high, pre-sale strategy remains positive.

Guotai Junan released a research report stating that the Chinese aviation industry has a longer-than-expected growth logic, and the supply and demand recovery trend for 2025 is certain. Taking into account the marketization of ticket prices and the significant slowdown in fleet growth, it is expected to initiate an upward trend in profitability. Market expectations for the long growth logic are still low, and the greater the divergence, the greater the space. The 2025 Spring Festival travel season is expected to catalyze optimistic expectations. The strong demand for Spring Festival travel is expected to catalyze optimistic demand expectations, and proactive pre-sale strategies are expected to catalyze continued positive changes in revenue management expectations. Profit performance is expected to catalyze expectations for an upward shift in profitability. It is noted that changes in oil prices and exchange rates do not change the long-term value of airlines and may provide a contrarian opportunity. Guotai Junan's main points are as follows: Official predictions suggest Spring Festival travel flows will reach a historic high, consistent with forward-looking judgments. 1) According to the 2025 National Spring Festival TV and phone conference, the total cross-regional population flow of the entire society during the 2025 Spring Festival period is expected to reach 9 billion person-times, a historic high, with an expected year-on-year increase of 6.9%. Among them, railway passenger traffic is expected to exceed 510 million person-times, with a year-on-year increase of over 5.5%, exceeding 25% compared to 2019; civil aviation passenger traffic is expected to exceed 90 million person-times, with a year-on-year increase of over 7.8%, exceeding 23% compared to 2019. The strong demand for the 2025 Spring Festival travel season aligns with our previous judgments. 2) According to the Civil Aviation Administration of China, during the 2025 Spring Festival period, the national average daily number of flights is estimated to be about 18,500, representing an 8.4% year-on-year increase, with an estimated increase of over 11% compared to 2019. The industry expects limited domestic overtime work, with Japan and other international routes likely to be the main source of overtime. According to FlightManager statistics, as of now, 86% of international flights (including foreign airlines) scheduled for the 2025 Spring Festival season have been restored, further improving on the 80% recovery rate seen in December 2024. Spring Festival pre-sales trends are good, with airlines' pre-sales strategy remaining positive without adjustments. With the start of railway Spring Festival pre-sales, pre-sales of Spring Festival air tickets have accelerated significantly. Compared to the same period of the lunar calendar in 2024, the increase in the number of pre-sold tickets for flights is roughly in line with the increase in the number of flights scheduled, with pre-sales exceeding 30% for the Spring Festival. Considering the upcoming school holidays, pre-sales are expected to continue to accelerate in the coming week. In recent years, Chinese aviation ticket prices have already been marketized, which will release the previously suppressed space for rising peak season ticket prices. At present, the industry's outlook for supply and demand during the Spring Festival is optimistic, and airlines' pre-sales ticket pricing strategies are still actively continuing from the 2024 Spring Festival without significant adjustments. The high baseline for domestic ticket prices during the 2024 Spring Festival is expected to help demonstrate the marketization effect of peak season ticket prices for the 2025 Spring Festival. It is suggested that a decrease in fuel surcharges may lead to a year-on-year decrease of around 6% in ticket prices inclusive of fuel, and attention is recommended to Guotai Junan's "fuel-adjusted ticket prices" (ticket prices minus per capita fuel costs) to better reflect airlines' profit trends. The airline industry saw significant losses reduced during the off-peak season of 2024 Q4, signaling an upward trend in profitability for 2025. During the years 2023-24, the aviation industry has been in the process of recovering supply and demand, with periodic confirmation of the logic of rising ticket prices and profits. Looking ahead to 2025, as the trend of supply and demand recovery becomes certain, an upward trend in profitability will begin. 1) Supply side: The trend of domestic flight reductions and international flight increases continues, and visa-free policies are expected to accelerate the resolution of wide-body aircraft mismatch problems and the absorption of excess domestic capacity. 2) Demand side: Chinese aviation consumption is still in its early stages, with resilient demand and endogenous growth potential, with expectations for policy support in 2025. 3) Revenue strategy: As of December 2024, there have been positive changes, and a threefold increase in fuel-adjusted ticket prices indicates a significant reduction in losses during the off-peak season. Positive strategies will benefit the performance during the Spring Festival peak season and accelerate the upward trend in profitability for 2025. Investment recommendation: Aviation has a long-term logic, and the Spring Festival may catalyze optimistic expectations, so it's recommended to maintain an "overweight" rating for Air China Limited (00753, 601111.SH), Juneyao Airlines (603885.SH), China Southern Airlines (600029.SH), China Eastern Airlines Corporation (600115.SH), Spring Airlines (601021.SH). Risk warning: Economic fluctuations, policies, oil prices, exchange rates, dilution from additional share issuance, safety accidents, etc.