GF Securities: Industry load factor remains strong, major airlines have strong motivation to increase ticket prices over the next 25 years.

GF Securities released a research report stating that the industry demand growth rate is faster than the supply growth rate, and by December 2024, domestic, international, and regional flight seat occupancy rates will see significant growth. Major airlines are expected to have strong motivation to increase ticket prices in 2025, with the impact on demand still to be observed. In the short term, with the Spring Festival approaching, the focus is on the price restoration of returning home and travel demands. In the long term, the slowing growth rate of capacity introduction by Chinese airlines is relatively certain; confidence in travel continues to recover, and the long-term investment logic of the aviation industry remains unchanged (i.e. improvement in supply and demand structure, market-oriented ticket prices), awaiting economic recovery. It is expected that the profit center of airlines will continue to rise in the coming years, focusing on investment opportunities in the aviation sector. GF Securities' main points are as follows: In December, the industry's seat occupancy rate remained strong, with domestic, international, and regional routes all recovering well. According to the operating data announcements of five listed airlines (Air China Limited, China Eastern Airlines, Spring Airlines, Juneyao Airlines, etc.) in December, their total supply and demand improved by 7.6%/13.7% year-on-year (Air China Limited data is based on the Shanhai-kou method, the same below), compared to 4.7%/6.8% year-on-year growth in 2019, the seat occupancy rate improved significantly by 4.4 percentage points year-on-year, compared to a high of 1.6 percentage points in the same period of 2019. In December, the year-on-year increase in supply and demand on international routes was impressive. Specifically: domestic supply and demand decreased by 1.0%/increased by 3.7% year-on-year, about 109.6%/111.9% of the same period in 2019, and the seat occupancy rate increased by 3.8 percentage points to 83.3% year-on-year, 1.7 percentage points higher than in 2019. International route supply and demand increased by 34.7%/47.2% year-on-year, approximately 95.1%/96.3% of the same period in 2019, and the seat occupancy rate increased significantly by 6.9 percentage points to 80.6% year-on-year, 1.0 percentage points higher than in 2019. Regional route supply and demand increased by 1.7%/8.4% year-on-year, approximately 104.5%/107.9% of the same period in 2019, and the seat occupancy rate increased by 4.7 percentage points to 75.5% year-on-year, 2.4 percentage points higher than in 2019. The three major airlines are steadily recovering, with Juneyao Airlines and Spring Airlines performing well. According to the operating data announcements of the three major airlines in December, supply and demand of the three major airlines increased by 6.9%/13.5% year-on-year in December, continuing the recovery pace. Domestic supply and demand of the three major airlines have respectively recovered to 107.2%/109.3% of the same period in 2019. According to the operating data announcements of Juneyao Airlines and Spring Airlines in December, the total supply/demand of Juneyao Airlines has returned to 137.3%/139.9% of the same period in 2019, with a total seat occupancy rate exceeding 1.6 percentage points of the same period in 2019 to 82.4%, and the demand for domestic/international/regional routes respectively reached 121.5%/236.6%/121.8% of the same period in 2019. Spring Airlines maintains a leading seat occupancy rate, reaching 90.8%, exceeding the same period in 2019 by 3.0 percentage points, with seat occupancy rates of 91.1%/89.8%/88.5% for domestic/international/regional routes respectively. Hainan Airlines' international and regional routes showed outstanding year-on-year performance, with demand increasing by 144.9%/90.8%, far surpassing the supply growth rate. International flights continue to recover, focus on long-term investment opportunities. Due to the rapid growth of industry demand compared to supply, the seat occupancy rates of domestic, international, and regional routes in December have seen significant growth. The long-term trend of supply and demand improvement in the industry remains unchanged. On the domestic front, continued efforts by local governments to promote cultural and tourism consumption are expected to continue the recovery momentum of the aviation industry. Overseas, simplified immigration policies are boosting the growth of international routes. Major airlines are expected to have strong motivation to increase ticket prices in 2025, with the impact on demand still to be observed. In the short term, with the approaching Spring Festival, the focus is on the restoration of prices for returning home and travel demands. In the long term, the slowing growth rate of capacity introduction by Chinese airlines is relatively certain; confidence in travel continues to recover, and the long-term investment logic of the aviation industry remains unchanged (i.e. improvement in supply and demand structure, market-oriented ticket prices), awaiting economic recovery. It is expected that the profit center of airlines will continue to rise in the coming years, focusing on investment opportunities in the aviation sector. Recommended targets: Air China Limited (601111.SH), China Eastern Airlines Corporation (600115.SH), Spring Airlines (601021.SH), Juneyao Airlines (603885.SH), focus on Hainan Airlines Holding (600221.SH), China Express Airlines (002928.SZ). Risk warning: Exchange rate fluctuations, oil price fluctuations, macroeconomic and industry growth risks, safety accidents.