Guotai Junan: After the dispersal of the Spring Festival return passenger flow, the decline in airfare may narrow.

Guotai Junan released a research report stating that the passenger flow during the 2025 Spring Festival travel season will reach a new high, with a more dispersed return flow after the holiday. The growth rate of air travel return flow is stable compared to the same period in 2019, and the future decrease in ticket prices may gradually narrow. The Chinese aviation industry has exceeded expectations for growth, with the trend of supply and demand recovery continuing in 2025. Considering the marketization of ticket prices and a significant slowdown in fleet expansion, it is expected that profitability will increase. Market expectations for long-term growth logic are still low, leaving room for larger differences of opinion. With the Spring Festival travel season reaching a new high, airfares are decreasing year on year while passenger load factors are increasing. Combined with improvements in cost pressures, it is expected that profitability will still be better than expected. It is suggested that oil prices and exchange rates do not change the long-term value of airlines, and may provide opportunities for contrarian investment. The main views of Guotai Junan are as follows: The cumulative growth rate of passenger flow during the Spring Festival travel season exceeds official expectations, and a more dispersed return flow after the holiday is in line with expectations. According to the Ministry of Transport, the inter-regional passenger flow for the first 29 days of the 2025 Spring Festival travel season (ending on the 14th day of the Lunar New Year on February 11) increased by 8% year-on-year, still higher than the official pre-holiday expectations. The breakdown is as follows: highway 8%; railway 6%; civil aviation 6%. Due to the early arrival of the Chinese New Year in 2025, the pre-holiday passenger flow was concentrated, while the return flow after the holiday was relatively more dispersed. Over the 9 days post-holiday (from the 6th day to the 14th day of the Lunar New Year), the passenger flow increased by 7% year-on-year, with the breakdown as follows: highway 7%; railway 4%; civil aviation 6%. Due to the staggered holidays, the effect of taking days off, and low base numbers caused by rain, snow, and freezing weather, the daily year-on-year growth rate of the return flow was low initially but increased later, with a more significant decline in the growth rates of highways and railways compared to 2019. Air travel passenger flow: the return flow after the holiday increased by 6% year-on-year, with a stable growth rate compared to 2019. During the first 29 days of the 2025 Spring Festival travel season, China's civil aviation daily passenger volume was around 2.29 million people, with a year-on-year growth rate of 6%, reaching a historical new high. The pre-holiday passenger flow increased by nearly 8% year-on-year, the Golden Week holiday increased by 2% year-on-year, and the return flow after the holiday increased by 6% year-on-year. According to Aviation Flight Manager data, the daily number of domestic flights in the first 29 days of the Spring Festival travel season increased by 5% year-on-year, with domestic flights increasing by 2% year-on-year and international flights increasing by more than 30%. The growth in air travel passenger flow during the Spring Festival travel season was mainly driven by high growth in international passenger flow, benefiting from the cumulative effects of increased international flights over the past year. The return flow of air travel was also relatively more dispersed, with the effect of taking days off leading to a shift in passenger flow. The growth rate of passenger flow from the 6th to the 10th day of the Lunar New Year was lower, while it still maintained a stable growth rate of over 20% compared to the same period in 2019. It is expected that there will be a final wave of return flow after the Lantern Festival, combined with the continued recovery of public and business activities, leading to a steady increase in passenger flow. Airfare: the downward trend in ticket prices after the holiday, with the possibility of the decrease narrowing gradually in the future. 1) Pre-holiday ticket prices performed well: benefiting from the concentrated passenger flow, the estimated domestic load factor increased year-on-year, and the bare ticket price remained the same as in the same period in 2019. 2) The Golden Week stimulated second trips: due to the preference for short-distance travel during the holidays, the domestic bare ticket price decreased from a high base number year-on-year, and the estimated domestic fare including fuel decreased by over 10% year-on-year. 3) The decrease in ticket prices after the holiday may gradually narrow: the downward trend in the bare ticket price continued, ensuring relatively stable return flow and improved load factor compared to the mid-holiday period. Considering the gradual resumption of public and business activities, as well as the high base number effect in Q1 of 2024, it is expected that the year-on-year decrease in ticket prices may gradually narrow in the future. The consensus in the industry is that ticket prices in 2025 will recover compared to 2024, and it is recommended to pay attention to subsequent off-peak public and business demand as well as airline revenue management strategies. Increased turnover and lower oil prices are expected to assist in alleviating cost pressures for airlines, and it is predicted that profitability during the peak season of the 2025 Spring Festival travel season will still be better than market expectations. Risk factors: economic fluctuations, policies, oil prices, exchange rates, dilution from additional capital issues, safety accidents, etc.