Guotai Junan: strong demand for the 2025 Spring Festival travel season, aviation passenger traffic hits a new high, post-holiday public and business activities start off well.

Guotai Junan released a research report stating that the Chinese aviation industry has a longer-than-expected logical development, with the trend of supply and demand continuing to recover by 2025. Considering the marketization of ticket prices and the significant slowdown in fleet expansion, profit recovery and upward trend can be expected. Market expectations for the long-term logic are still low, and the greater the divergence, the greater the potential. During the 2025 Spring Festival travel rush, private demand is strong, air passenger traffic reaches a new high, and after the Lantern Festival, public and business demand is expected to start well, potentially catalyzing optimistic expectations for the growth of air travel demand and the continued recovery of supply and demand profits. It is suggested that changes in oil prices and exchange rates do not affect the long-term value of airlines, and may provide a contra-cyclical opportunity. Key points from Guotai Junan: The demand for the 2025 Spring Festival travel rush is strong, with passenger traffic for all modes of transportation reaching new highs According to the Ministry of Transport, during the 40-day Spring Festival travel period in 2025 (1/14-2/22), the total cross-regional passenger flow exceeded 9 billion person-times, in line with official expectations and reaching a new historical high, with a year-on-year growth of 7.1%. Road transportation increased by 7%, railways by 6%, and civil aviation by 7%. Compared to the 2019 Spring Festival travel period, the cross-regional passenger flow increased by 15%, with road transportation up by 15%, railways by 25%, and civil aviation by 24%. 1) Pre-holiday period (first 14 days): The early Spring Festival led to a concentrated influx of passengers, with a year-on-year increase of 8.8%; 2) Mid-holiday period (8 days): Benefit from the extended holiday and pent-up demand for travel, with strong secondary travel during the holiday period filling the traditional low season, resulting in a year-on-year growth of 5.8%, continuing the trend of preferring short-haul trips during holidays over the past year; 3) Post-holiday period (last 18 days): Return journeys are dispersed and delayed, coupled with the low base of freezing rain and snow, resulting in a year-on-year increase of 6.5% in passenger traffic. Air passenger traffic: Air passenger traffic during the 2025 Spring Festival travel rush hits a new high, with public and business travel starting well after the Lantern Festival Air passenger traffic during the 2025 Spring Festival travel rush in China exceeded 90.2 million person-times, a year-on-year increase of 7.4%, reaching a new high. 1) The high base during the mid-holiday period led to low growth. The year-on-year growth rates of airline passenger traffic before and after the holiday period were around 8%, while during the Golden Week, it only increased by 2%. It is suggested that secondary travel was strong during the mid-holiday period in 2024. If the high base and comparison with the same period in 2019 are excluded, the growth rate of mid-holiday period passenger traffic is still significantly higher than that of before and after the holiday period, reflecting the extended holiday and pent-up demand for travel during the mid-holiday period. 2) International flight routes show high growth. The year-on-year growth of air passenger traffic during the 2025 Spring Festival travel rush is mainly attributed to the high growth of international passenger traffic, benefiting from the cumulative effect of increased international flights over the past year. According to Flight Manager, it is estimated that the number of international passenger flights for the Spring Festival travel rush increased by nearly 30% year-on-year. 3) Public and business travel starts well after the Lantern Festival. Airfare: The year-on-year decline in seat revenue during the 2025 Spring Festival travel rush, with recent bare ticket prices already turning positive year-on-year Guotai Junan pointed out that the seat occupancy rate during the 2025 Spring Festival travel rush is estimated to increase by 1-2% year-on-year, with domestic bare ticket prices decreasing by about 5% year-on-year from a high base, and domestic ticket prices including fuel decreasing by nearly a tenth year-on-year. Among them, the performance of small airlines in terms of seat revenue is better than the industry average. 1) Pre-holiday period: Benefiting from the concentrated influx of passengers, domestic bare ticket prices remained stable year-on-year, while the seat occupancy rate increased year-on-year; 2) Mid-holiday period: Airlines are generally optimistic about the expectation of secondary travel and are actively increasing investment, while the preference for short-haul trips during the holiday period continues and high-speed rail increases flights, resulting in a year-on-year decrease in domestic bare ticket prices and seat occupancy rates from a high base; 3) Post-holiday period: The dispersion of passenger traffic leads to a continued year-on-year decrease in ticket prices, while the seat occupancy rate increases year-on-year. Public and business travel starts well after the Lantern Festival, combined with the base effect of ticket prices being high in 2024Q1 and then low, indicating that domestic bare ticket prices have already turned positive year-on-year. The consensus in the industry is that ticket prices in 2025 will recover compared to 2024, and the year-on-year positive growth in bare ticket prices is expected to continue. Increasing turnover and decreasing oil prices will help alleviate the cost pressure on airlines, and it is expected that profits for 2025Q1 will be better than expected. In terms of subjects Maintain a "buy" rating on Air China Limited (601111.SH), Juneyao Airlines (603885.SH), China Southern Airlines (600029.SH), Spring Airlines (601021.SH), China Eastern Airlines Corporation (600115.SH), and other airlines. Risk warning Economic fluctuations, policies, oil prices, exchange rates, dilution through share issuance, safety accidents, etc.