Zhongtai: The aviation supply and demand structure is expected to continue to improve in 2026, with a strong increase in ticket prices compared to the previous year.

Zhongtai releases research report stating that looking ahead to 2026, the growth of capacity in the domestic civil aviation market is slow but steady, with demand continuing to moderately recover, driving passenger load factors to reach new highs and prices to trend upwards. The international market will benefit from visa-free policies and the ongoing positive effects of companies going global, leading to optimistic demand growth potentially stronger than expected, thus driving continuous improvement in both volume and price performance. The bank predicts that 2026 will be a year where the positive cycle of volume and price in the civil aviation market continues to manifest and is widely recognized by the market; it will also be a year where the growth engine gradually shifts from the domestic market to the international market, thereby driving industry-wide increases in volume and price. Zhongtai's key points include: Review of 2025: Global growth slows, Chinese civil aviation catching up Global aviation industry: Growth slows, slight decline in industry profitability in 2025. IATA predicts a 5.8% year-on-year increase in global RPK in 2025, with the Asia-Pacific region leading at 9%. The global average passenger load factor reaches 84%, a historic high. Airlines are expected to achieve a 6.7% pre-tax profit margin in 2025, up 0.3 percentage points year-on-year. Net profit margin is expected to reach 3.7%, down 0.4 percentage points from the peak in 2023. Chinese aviation industry: Profitable in the first three quarters, international routes recovering quickly. From January to October 2025, industry ASK/RPK increased by 6.1%/8.2% year-on-year, with an average passenger load factor of 85.12%, up 1.7 percentage points year-on-year. In terms of sub-companies, the ASK and RPK of each airline group increased year-on-year, in particular, the international route ASK and RPK growth rates were much higher than domestic routes (the ASK of domestic routes for the three major airlines increased by only 0%-3%, while international route ASK increased by 13%-20%). In the first three quarters of 2025, Air China/Eastern Airlines/Southern Airlines achieved net profits attributable to owners of 18.70/21.03/23.07 billion yuan respectively, and the three major airlines are expected to achieve full-year profitability. Aviation outlook for 2026: Continued improvement in supply-demand dynamics, strong expectations for year-on-year ticket price increases Supply side, the growth rate of supply in 2026 is expected to remain low. New aircraft: Global order backlog continues to hit record highs, but aircraft utilization has reached a peak. 1) The order backlog continues to hit record highs, but deliveries have not recovered to pre-pandemic levels. According to IATA data, by the end of 2024, the backlog of aircraft orders reached a record 17,000 aircraft, but fleet utilization has reached record levels. In the first 11 months of 2025, Airbus delivered 657 aircraft, and it is expected to be difficult to achieve the full-year delivery target of 820 aircraft. Boeing delivered 493 aircraft in the first ten months, down from the peak of 806 aircraft delivered in 2018. 2) Chinese airlines may not be able to complete their 2025 aircraft introduction plans. As of the end of October 2025, Chinese airlines had 93 undelivered Boeing orders and 249 undelivered Airbus orders, down by 3 and 74 respectively from the end of last year. In the first 10 months of 2025, the seven listed airlines net added 100 aircraft, only Spring Airlines has completed its full-year delivery plan, with Air China/Eastern Airlines/Southern Airlines adding aircraft by 69%/53%/78% of the planned net additions. Looking ahead to 2026, with no major improvements in Boeing and Airbus deliveries, the speed of aircraft introduction by airlines may remain low. Existing aircraft: 1) Maintenance of Pratt & Whitney engines disrupts supply. According to IATA data, in the first quarter of 2025, there were more than 1,100 parked aircraft under the age of ten (69% equipped with PW1100G engines), accounting for 3.8% of the total fleet (compared to 1.3% from 2015-2018). In China, the number of A320/321NEO aircraft parked increased from 124 at the end of 2024 to 150 in December 2025. 2) Limited space for aircraft utilization release. In July-August 2025, the peak season aircraft utilization reached 10 hours (the highest single-month level was 10.2 hours). Demand side, international recovery remains a highlight for 2026. 1) It is expected that moderate recovery of domestic business and leisure travelers in 2026, leisure demand remains strong. Since March this year, the proportion of business travelers on domestic routes has continued to decrease, and the summer peak in July-August hovered at historically low levels until the fourth quarter began to recover. The bank believes that in 2026, business travelers will gradually recover as the economy grows, and the demand from elderly travelers, young travelers, and children will remain strong. 2) It is expected that the favorable visa-free policy will continue to benefit in 2026, and international inbound and outbound demand will continue to recover strongly. Regarding outbound travel, there are currently 29 countries that grant visa-free entry to Chinese citizens. Chinese travelers prefer short-haul destinations, and from the fourth quarter of 2024 to the second quarter of 2025, Japan, South Korea, and Thailand topped the list of outbound travel ticket search volumes. Regarding inbound travel, China currently offers a 30-day visa-free policy to 48 countries and a 240-hour transit visa-free policy to 55 countries. In the third quarter of 2025, there were 7.246 million inbound passengers entering with visa-free arrangements, a 48.3% increase year-on-year. 3) It is expected that the continued assistance of enterprises going global will drive international demand growth in 2026. Chinese companies are confident in the development of their overseas business in the next 3-5 years, with Southeast Asia being a popular destination for international travel, and the Middle East representing a growth area due to energy transition and the "Digital Silk Road". The strong demand for international business travel will drive international ticket prices up, with international booking ticket prices increasing by about 4.6 percentage points year-on-year in the first half of 2025. 4) There is some disturbance in the China-Japan route, with minimal impact on core city flights, and demand may shift to surrounding countries. Drawing a parallel with the South Korea THAAD incident, the bank believes that the impact on flights to Tokyo, Japan in 2026 may be relatively small (during the THAAD incident, the domestic airlines at Seoul, Gimpo Airport experienced a small decrease in planned schedules, while tourist cities like Jeju Island saw a larger decrease, other destinations such as Indonesia, Japan, and Malaysia saw increases in the number of tourists). On the ticket price side, passenger load factors may already be close to their limit, and the trend of improvement in ticket prices is expected to continue. As the current load factors are at their highest level since 2009, the bank believes that airlines' willingness to engage in price wars will diminish. Moreover, the industry's expectation of "anti-internalization" is still present and is expected to support ticket price increases. Risk warnings: Risks of macroeconomic downturn, exchange rate fluctuations, rising oil prices, third-party data credibility, and risk of delayed updates to research report information.