CITIC SEC: Focus on the post-holiday traffic stacking effect, continue to recommend the prosperity cycle.

CITIC SEC released a research report stating that in the first 20 days of the Spring Festival travel season, civil aviation, railways, and road passenger traffic increased by +5.4%, +4.9%, and +5.4% year-on-year, respectively. The report focuses on the overlapping effects of passenger traffic during the peak travel periods after the festival, and predicts that civil aviation passenger flow during the Spring Festival will increase by 5.5% to 6.0%. The 2026 Spring Festival will be the first "touchstone" for the aviation prosperity cycle, so attention should be paid to the overlapping effects of passenger flow after the festival, reiterating the importance of "paying attention to the turning point of airlines' profitability." It is expected that major airlines in 2026 will see significant improvements in their profit margins. The report continues to recommend airlines with significant cyclical elasticity and high performance certainty. The main points of CITIC SEC are as follows: In the first 20 days of the Spring Festival, civil aviation, railways, and road passenger traffic increased by +5.4%, +4.9%, and +5.4% year-on-year, respectively. The report focuses on the overlapping effects of the peak travel periods after the festival, and predicts that civil aviation passenger flow during the Spring Festival will increase by 5.5% to 6.0%. Positive demand factors are expected to continue to emerge in the next two months. The report continues to emphasize that major airlines in 2026 may see significant improvements in their profit margins. As of February 21 (the first 20 days of the Spring Festival, with the 2026 Spring Festival running from February 2 (Lunar New Year's Eve) to March 13 (Lunar New Year's Day)), cross-regional cumulative population movement increased by 5.2% year-on-year. In terms of transportation modes, passenger traffic (referring to passenger movement on roads), civil aviation, railways, and roads increased by +5.4%, +4.9%, and +5.4% year-on-year respectively, compared to +34% and +39% for civil aviation and railways during the same period in the 2019 Spring Festival, indicating a relatively stable structure of holiday travel. Taking civil aviation data as an example, this year's peak period occurred on February 11 (Lunar New Year's Eve), with passenger traffic on that day increasing by 4.4% year-on-year to 2.459 million people. In the first 20 days of the Spring Festival, the post-holiday peak occurred on the fifth day of the first lunar month, with passenger traffic on that day increasing by 7.4% year-on-year to 2.607 million people. The mismatch of the Spring Festival dates has led to the overlap of post-holiday family visits, public business, and student flows, among others. The report predicts that civil aviation passenger flow during the Spring Festival will have a year-on-year growth of 5.5% to 6.0%. Considering the offset of the Spring Festival holiday dates, the compression in the downtime after the start of work may lead to an outbreak of public business travel demand, as well as anticipation for the expansion of the spring break in April. Positive factors on the demand side continue to emerge, and the report continues to emphasize that major airlines in 2026 may see significant improvements in their profit margins. One characteristic is that the growth rate of civil aviation passenger flow during the Spring Festival shows a pattern of "slow at the beginning and high later," with the stimulating effect of second travel during the holiday and the overlapping effect of post-holiday passenger flow expected to occur. 1) Before the festival (from the fifteenth day to the Lunar New Year's Eve), the Lunar New Year's Eve in 2026 fell on February 16, which implies a relatively late Lunar New Year according to the lunar calendar. Family visitation, public business, and student flows before the festival have a certain staggered effect, leading to a 4.4% increase in civil aviation passenger flow compared to the previous year. If we exclude the roughly 7% increase in passenger flow on Fridays in the two weeks before the festival, the other days saw low single-digit year-on-year growth rates. 2) During the holiday period (from Lunar New Year's Eve to the seventh day of the Lunar New Year), the prolonged Lunar New Year holiday period and the combination of extended holidays, warming weather, and various positive factors such as local tourist attractions are expected to increase the year-on-year growth rate of civil aviation passenger flow to around 8%. The stimulating effect of second travel is evident, with cities like Shantou, Fuzhou, Chaozhou, and Taiyuan ranking among the top for specialty tourism. 3) After resuming work (from the eighth day to the twenty-fifth day after the Lunar New Year), the seventh day and the sixteenth day after the Spring Festival will see a peak in passenger traffic. The overlap of family visitation, public business, and student flows will lead to an estimated year-on-year growth rate of around 6% in civil aviation passenger flow in the 17 days after the Spring Festival. Another characteristic is that the negative factors affecting the Japan route are expected to have bottomed out, with flights mainly diverted to South Korea and Southeast Asia. The expansion of visa-free policies maintains a high level of prosperity for China Travel, and the contribution of airlines to revenue from flying to distant places, international destinations, and emerging markets is expected to continue in 2026. According to data from the National Immigration Administration, the daily average number of inbound and outbound passengers during the Spring Festival holiday is expected to exceed 2.05 million, a year-on-year increase of 14.1%. According to Flight Master data, there were 37,500 international passenger flights in the first 19 days of the 2026 Spring Festival, an increase of 0.8% year-on-year, reaching 92% of the level in 2019. Looking at the destinations, Thailand has the highest weekly flight volume at 1,101 flights, but given the recent security incidents, the recovery rate compared to 2019 is only about 76%. On the other hand, the Japan market has undergone structural changes due to policy factors and currently ranks fifth as a travel destination, with a recovery rate compared to 2019 of only about 57%. The report believes that passenger flow from the Japan route may be diverted to Southeast Asia, South Korea, Europe, and other markets, with weekly flight volumes in South Korea, Europe, and Vietnam reaching or exceeding levels seen in the same period in 2019, at 98%, 125%, and 145%, respectively. A third characteristic is that ticket prices during the Spring Festival are expected to show a slight year-on-year increase, with a focus on the marginal variables driving high passenger load factors and the transmission of elasticity towards ticket prices in the civil aviation sector. According to CADAS data monitoring, the average full fare for domestic flights in the first 19 days of the Spring Festival was 978 yuan, a decrease of 1% year-on-year. Looking at specific stages: 1) In the early stages of the Spring Festival (from the fifteenth day to the twenty-first day of the lunar calendar), ticket prices were slightly lower than the same period in 2025, with an average price of 947 yuan, a decrease of 1.3% year-on-year. 2) In the period approaching the Spring Festival (from the twenty-third day to the twenty-sixth day of the lunar calendar), ticket prices decreased significantly, with a year-on-year decrease of 5.5%. The peak ticket prices for 2025 and 2026 both occurred on the twenty-sixth day of the lunar month, but the peak ticket price for 2026 was 1120 yuan, an 8% decrease year-on-year. 3) After the Lunar New Year (from the first day to the fourth day of the first lunar month), with the stimulating effect of second travel during the "segmented Spring Festival" becoming apparent, ticket prices showed a year-on-year increase, with an average price of 979 yuan, an increase of 5.8% year-on-year. The seventh and sixteenth days after the Lunar New Year will see peaks in passenger flow, and the overlap of family visitation, public business, and student flows will have a positive impact on ticket prices. Risk factors: Macroeconomic growth is lower than expected; travel demand is lower than expected; international route recovery is slower than expected; and unexpected impacts from oil and exchange rates.