Guotai Junan: Maintaining "Buy" rating on the aviation industry, Spring Festival travel may catalyze optimistic expectations.

Guotai Junan has released a research report stating that it maintains a positive outlook on the aviation industry. The Chinese aviation industry has a logic of exceeding expectations, with the overall industry expected to turn losses around by 2024 and supply and demand recovery trend confirmed by 2025. Considering the marketization of ticket prices and significant slowdown in fleet growth, it is expected to open up profit potential. The strong demand during the Spring Festival travel season is expected to catalyze optimistic expectations, and proactive pre-sales strategies are likely to catalyze continued positive revenue management changes, leading to profit recovery and future profit growth expectations. The report suggests that oil prices and exchange rates do not change the long-term value of airlines, providing a counter-cyclical opportunity. Key points from Guotai Junan's report include: - Aviation has a long-term logic, with the Spring Festival expected to catalyze optimistic expectations, thereby maintaining a positive outlook on aviation. - The Chinese aviation industry has a logic of exceeding expectations, with the industry expected to turn overall losses around by 2024 and the supply and demand recovery trend confirmed by 2025. Considering the marketization of ticket prices and a significant slowdown in fleet growth, it is expected to open up profit potential. Market expectations for the long-term logic are still at a low level, indicating a large room for growth. The strong demand during the Spring Festival travel season is expected to catalyze optimistic expectations, and proactive pre-sales strategies are likely to catalyze continued positive revenue management changes, leading to profit recovery and future profit growth expectations. It is suggested that oil prices and exchange rates do not change the long-term value of airlines, providing a counter-cyclical opportunity. - In the first week of the 2025 Spring Festival travel season, passenger flows increased by 3% year-on-year, with significant variations in daily year-on-year changes due to working day discrepancies. - On January 14, 2025, the official start of the Spring Festival travel season, according to statistics from the Ministry of Transport, in the first week of the Spring Festival (January 14 to 20), the total inter-regional population flow increased by about 3% year-on-year, including: 1) Railways: Passenger traffic increased by 5% year-on-year; 2) Civil aviation: Passenger traffic increased by 8% year-on-year; 3) Roads: People flow increased by 2% year-on-year; 4) Water transportation: Passenger traffic increased by 3% year-on-year. Observing the flow of passengers, there was a slight year-on-year decrease in the early stages of the Spring Festival travel season, but in the following days, the flow of passengers increased daily, and the year-on-year growth rate quickly improved. In 2024, the first day of the Spring Festival travel season was on a Friday, while in 2025, it falls on a Tuesday, which may lead to significant day-to-day year-on-year changes due to differences in working days. The upcoming week will be the peak period of pre-holiday passenger flow, with the growth rate expected to continue to rise. - Aviation passenger flow: Leading growth in year-on-year increase in the first week of the Spring Festival travel season, with significant growth on international routes. - In the first week of the 2025 Spring Festival travel season, the daily average passenger traffic of civil aviation was about 2.21 million, with a year-on-year increase of 8%, which is a 26% increase compared to the Lunar New Year period in 2019, and the growth rate essentially meets official expectations, leading significantly among other means of transportation. It is expected that there will be limited additional flights on domestic routes during the 2025 Spring Festival travel season, mostly involving structural adjustments and optimizations to meet the demand of the Spring Festival; international routes are expected to benefit from accumulated recovery effects in the past year and additional flights during the Spring Festival, with a significant year-on-year increase in traffic volume. According to flight management statistics, in the first 7 days before the Spring Festival travel season, the daily average number of actual passenger flights nationwide increased by 6% year-on-year, with domestic flights increasing by only 3% year-on-year, while international flights increased by over 30%, with Japan being the main direction for increased flights. - Aviation ticket prices: Airlines actively managing revenue, estimated that the average ticket prices in the first week of the Spring Festival travel season are roughly the same year-on-year. - Airlines anticipate positive supply and demand dynamics for the 2025 Spring Festival travel season and are actively managing revenue. In the first week of the 2025 Spring Festival travel season, domestic passenger load factors are expected to increase year-on-year, estimated to be roughly the same as the Lunar New Year period in 2019; estimated domestic ticket prices are expected to be similar year-on-year, also roughly in line with the Lunar New Year period in 2019; considering the decrease in fuel surcharges, estimated domestic ticket prices including fuel surcharges are expected to decrease by about 6% year-on-year, with the estimated domestic ticket prices excluding fuel costs (ticket prices minus average fuel costs per person) year-on-year being close to the high baseline of 2024. Industry insiders believe that the ticket pre-sales progress for the Spring Festival travel season is in line with expectations, and optimistic expectations for the long weekend holidays are expected to stimulate second trips, with no obvious adjustments to airline revenue strategies. It is expected that domestic passenger load factors and ticket prices during the 2025 Spring Festival travel season will remain similar to those of the 2019 Spring Festival. Post-holiday passenger flows are expected to be dispersed, providing an important window to observe airlines' revenue management strategies for the 2025 Spring Festival travel season. Risk warning: Economic fluctuations, policies, oil prices, exchange rates, additional issuances dilution, safety accidents, etc.