Guotai Haitong: Spring Festival holiday passenger flow growth rate increases, expected Spring Festival airline profits to improve year-on-year.

Guotai Haitong released a research report stating that the Chinese aviation industry will usher in a "super cycle" and recommended to layout the long-term logic of aviation. With the marketization of airfare prices in the "14th Five-Year Plan" period and a low-growth era in aviation supply, the continuous growth in future demand will drive the supply and demand to continue to improve by 2026, leading to an increase in airfare prices and profits. The sustainable high prosperity in the future will exceed market expectations, and the Chinese aviation industry will finally see the long-awaited "super cycle". It is emphasized that the long-term logic will provide a double space for performance valuation, and the continuous positive feedback of fundamentals and the peak season performance are expected to catalyze optimistic market expectations. The quality of the air network will determine the future profit growth space and sustainability of traditional airlines, so it is recommended to increase holdings in the aviation sector. The main points of Guotai Haitong are as follows: Tracking of 2026 Spring Festival Travel: The growth rate of passenger flow during the Spring Festival holiday continues to lead, with aviation passenger flow increasing at a higher speed. Halfway through the Spring Festival travel period, as of February 22 (21 days before the Spring Festival), the total flow of people in the society increased by 6.0% compared to the lunar calendar, with road transportation up by 6.0%, railways up by 5.3%, and aviation up by 6.0%. 1) Before the festival (2/2-2/14): The flow of people increased by 3.1% compared to the same period last year. Before the 2026 Spring Festival holiday, there were 6 working days, resulting in a weaker pre-holiday effect than in previous years, with peak passenger flow occurring in the five days before New Year's Eve and gradually increasing in the road and railway passenger flow. 2) During the festival (2/15-2/23): The flow of people increased by 9.7% compared to the same period last year, and the passenger flow of the three main transportation modes increased significantly compared to the pre-holiday period. The 2026 Spring Festival holiday has a 9-day break, and the holiday is extended again to meet the demand for visiting relatives and traveling, leading to a significant increase in the second round of travel, with coastal and tourist cities such as Guangdong, Hainan, Yunnan, and Guangxi leading the popularity. 3) After the festival (2/24-3/13): It is expected that the post-holiday effect will be weaker than in previous years, and the return flow of passengers will be relatively concentrated compared to the same period last year. Aviation Passenger Flow: Limited overtime work during the Spring Festival, with an increase in the passenger flow speed during the Spring Festival holiday compared to the pre-holiday period During the first 21 days before the 2026 Spring Festival travel period, the daily average passenger traffic of civil aviation was about 2.39 million, with a year-on-year increase of 6.0% in the lunar calendar, which is in line with the expectations of the authorities. During the 2026 Spring Festival travel period, civil aviation overtime work was limited, and the authorities strictly controlled the increase of mainline market airlines and passenger flights. According to statistics from Flightstats, the daily average actual passenger flights in the country during the first 21 days of the Spring Festival travel period increased by nearly 5% year-on-year, with the increase in domestic and international routes being similar. 1) Before the festival: Passenger flow increased by 5.1% year-on-year; 2) During the festival: Passenger flow increased to 7.6% year-on-year, and the extended holiday was conducive to the growth of second-round travel and international long-distance travel; 3) After the festival: It is expected that the return passenger flow will be relatively concentrated, and the impact of important domestic meetings after the Spring Festival on domestic travel is expected to be short-lived, with public and business travel expected to recover faster than in previous years. Airfare Prices: The seat occupancy rate and ticket prices during the Spring Festival holiday are on the rise, with a widened increase in ticket prices during the Spring Festival holiday In the first 21 days before the 2026 Spring Festival travel period, the bank estimated that the domestic seat occupancy rate increased by about 1-2 percentage points year-on-year, and the estimated domestic base ticket price (excluding fuel surcharges) increased by about 3-4% year-on-year. Considering a year-on-year drop of 13% in aviation fuel prices in February 2026, the estimated domestic ticket price after deducting fuel costs (including the deduction of the average fuel cost per person) increased year-on-year, indicating that the airline's gross profit margin should increase year-on-year. 1) Before the festival: The ticket price increase during the peak passenger flow was limited by the increase in railway overtime work; 2) During the festival: Second-round travel was strong, with record high seat occupancy rates and a significant increase in ticket prices year-on-year; 3) After the festival: The pre-sale trend is good, ensuring a continuous high seat occupancy rate, which is conducive to near-term revenue management, while considering that the dispersion of passenger flow after the Spring Festival in 2025 led to relatively low ticket prices. The bank expects that the trend of ticket price increase after the festival will continue to improve. The bank predicts that the profits of airlines during the peak season of the 2026 Spring Festival travel period will significantly improve year-on-year, with airlines expected to achieve industry-wide profits in Q1 2026. Risk warning: Economic fluctuations, policies, oil prices, exchange rates, dilution from additional issuance, safety accidents, etc.