Cinda: Airlines' high passenger load factor in December stabilizes, optimistic about profit elasticity after release of oil and exchange rate pressures.

Cinda released a research report stating that by the end of 2024, domestic air passenger load factor had returned to pre-pandemic levels, with high load factors during the off-peak season; international routes had recovered to over 80%, with a noticeable improvement in load factors, and the industry's supply and demand were trending towards balance. The growth rate of capacity supply was slowing down with strong certainty, and ticket prices in 2024 had dropped significantly to low levels. If ticket prices were to increase along with economic recovery and increased travel demand, it could bring high elasticity to airline performance, coupled with factors such as a downward trend in oil prices and stable exchange rates, the upward potential of airline profits could be expected. Event: Various airlines released their operating data for December 2024. Key points from Cinda are as follows: Industry supply and demand are trending towards balance, load factors are recovering, and ticket prices are at low levels. 1) Supply and demand in the industry: Industry-wide capacity and traffic turnover, as well as monthly load factors, had exceeded the levels of the same period in 2019; year-on-year, there was a significant improvement in load factors. In November, industry-wide ASK and RPK were up by +5.7% and +7.9% compared to the same period in 2019, with year-on-year growth rates of +12.3% and +20.5%, respectively, and the corresponding load factor reached 83.2%, an increase of 1.7% over the same period in 2019. From January to November, industry-wide ASK and RPK were up by +10.4% from the same period in 2019, with year-on-year growth rates of +17.8% and +26.1%, and the cumulative load factor was 83.4%, unchanged from the same period in 2019. Looking at different regions, domestic traffic turnover had returned to normal growth, while international and regional traffic had recovered to over 80%, with a recovery rate of over 90% in November. 2) Ticket price situation: Significant year-on-year declines in average one-way ticket prices. In December, the average one-way ticket price was 696 yuan, up by 4.0% month-on-month but down by 8.9% year-on-year, an increase of 3.6% compared to the same period in 2019; the average ticket price in the fourth quarter fell by 9.8% year-on-year, and ticket prices remained low. Looking at different regions, domestic airfares saw larger declines than international airfares. In December, the average domestic ticket price was 657 yuan, down by 10.1% year-on-year, while the average international and regional ticket price was 1621 yuan, down by 7.5% year-on-year. 3) Oil and exchange rate changes: In terms of oil prices, the average annual aviation fuel price in 2024 was down by 7% year-on-year but up by 27.5% compared to the same period in 2019; the oil price in the fourth quarter of 2024 fell rapidly, with a quarter-on-quarter decrease of 24.4%. As of January 15, 2025, the settlement price of Brent crude oil futures had risen to $82.03 per barrel, an increase of 9.9% from the end of 2024. In terms of exchange rates, the US dollar strengthened rapidly at the end of 2024. At the end of the fourth quarter of 2024, the middle exchange rate for the US dollar against the Chinese yuan was 7.1884 yuan, an increase of 1.5% from the end of the third quarter of 2023, remaining relatively stable. The US dollar against the Chinese yuan rose by 2.6% in the fourth quarter. As of January 15, 2025, the middle exchange rate for the US dollar against the Chinese yuan was 7.1881 yuan, basically unchanged from the end of 2024. Airlines saw a recovery of over 80% in international routes throughout the year, with a slowdown in the introduction of capacity. 1) Operational situation: Maintaining high load factors during the off-peak season in December, domestic traffic turnover for the whole year grew by around 10%. In December, domestic traffic turnover for airlines saw a slight increase year-on-year, with international routes recovering to over 90%, and load factors basically exceeding those of the same period in 2019. In cumulative terms, domestic traffic turnover for airlines increased by around 10% year-on-year for the whole year, with international routes recovering to over 80%, and load factors basically returning to the levels of 2019. 2) Fleet introduction: By the end of 2024, the fleet sizes of Air China and China Southern Airlines had exceeded 900 aircraft, while China Eastern Airlines had over 800 aircraft. In December, China Eastern Airlines introduced the most new aircraft, with a net increase of 8 aircraft, bringing the total net increase for the year to 22 aircraft. Air China had the most net increase with a total of 25 aircraft for the year; Hainan Airlines, Spring Airlines, China Southern Airlines, and Juneyao Airlines each had a net increase of 14, 10, 8, and 8 aircraft for the year, respectively. Compared to earlier aircraft introduction plans, Spring Airlines achieved its annual target as planned, the net growth rates of the three major airlines and Juneyao Airlines were lower than the previous plan, indicating a slowdown in capacity growth. Investment recommendations: Positive outlook for the continued recovery of air travel, with a focus on Air China Limited, China Southern Airlines, Spring Airlines, Juneyao Airlines, and China Eastern Airlines Corporation. Risk factors: Travel demand growth below expectations, international route recovery below expectations, significant increase in oil prices, and significant depreciation of the Chinese Yuan.