Dongxing: Medium-sized airlines increase capacity, three major airlines maintain restraint.

Dongxing released a research report stating that there is still an oversupply of domestic routes in China. It is necessary to utilize the resumption of international routes to take away the excess capacity accumulated in the domestic market. It is recommended to pay close attention to the recovery of North American routes. In the near future, attention should be paid to the upcoming Spring Festival travel rush. Overall, although the civil aviation industry is still under pressure, the industry fundamentals are gradually improving. It is expected that the profit performance this year will be significantly better than last year. After a long period of adjustment, the safety margin of the stock prices of several major airlines is highlighted and worthy of close attention. Events: Listed airlines released their operating data for December. Domestic routes are still in the low season and the performance is relatively flat, while international routes are in the peak season with medium-sized airlines performing well. Key points from Dongxing are as follows: Domestic routes: Medium-sized airlines increase capacity, three major airlines maintain restraint In the domestic market, December domestic routes are still in the low season, with little change in demand compared to the previous month. The capacity put in place by listed companies increased by 1.9% compared to November, equivalent to 117.0% of the same period last year, a slight increase of 1.4% year-on-year. Large airlines are well aware of the current situation of insufficient demand in the industry in the fourth quarter, so they have generally maintained a cautious capacity deployment strategy. However, in contrast, Hainan Airlines and medium-sized airlines have been quite active in capacity deployment. Spring Airlines, Juneyao Airlines, and Hainan Airlines saw capacity increases of 8.1%, 7.2%, and 6.1% respectively, with growth rates significantly higher than the three major airlines. This is mainly done in anticipation of the Spring Festival travel rush. In terms of passenger load factor, with a slight increase in capacity deployment, the overall passenger load factor of listed airlines in December decreased by about 1.3 percentage points compared to the previous month. The phenomenon of passenger load factor and capacity deployment balancing each other out still exists, indicating that domestic demand is still weak. China Eastern Airlines and China Southern Airlines continue to prioritize high passenger load factors in their sales strategy, with passenger load factors about 3 percentage points higher than the same period in 2019. The two major airlines' focus on high passenger load factors has resulted in a slightly lower passenger load factor compared to the same period in 2019. International routes: Peak season arrival, medium-sized airlines performing well For international routes, the peak season has arrived and demand in the industry is picking up. The capacity deployment on international routes by listed airlines in December was about 95% of the same period in 2019, an increase of about 11.5% compared to November. In terms of passenger load factor, the passenger load factor in December remained stable compared to November and increased by 0.4 percentage points compared to the same period in 2019. Considering that in November the passenger load factor on international routes was 2.4 percentage points higher than the same period in 2019, the airlines' capacity deployment strategy for December may be slightly aggressive. Looking at individual airlines, the divergence in passenger load factors among the three major airlines in December is still evident. China Eastern Airlines and China Southern Airlines saw increases of 3.5% and 3.8% respectively compared to the same period in 2019, while Air China saw a decrease of 4.0%. This is similar to the situation in November, where the three major airlines showed a certain difference in prioritizing between ensuring passenger load factor and ensuring ticket prices. Medium-sized airlines performed well in December, with Juneyao Airlines and Spring Airlines increasing capacity by 32.2% and 19.8% respectively, while passenger load factor increased by 2.4% and 5.0% respectively compared to the previous month. Both capacity deployment and passenger load factor showed significant improvement. This indicates that the more flexible capacity deployment strategy of medium-sized airlines allows them to benefit more during the peak season compared to large airlines. Risk warning: Macro-economic downturn; changes in civil aviation policies; safety accidents; significant fluctuations in oil prices and exchange rates; abnormal weather factors, etc.