Guotai Haitong: Post-holiday airline ticket prices continue to rise, suggesting to seize the opportunity of a reverse in geopolitical oil prices.

Guotai Haitong released a research report suggesting to seize the opportunity of geopolitical oil price reversal and lay out the long logic of the aviation super cycle. During the "14th Five-Year Plan" period, the Chinese aviation industry will complete the marketization of ticket prices, and with the supply entering a low-growth era, the continuous growth in demand in the future will drive the supply and demand to continue to improve, opening up the long-awaited profitable and sustainable "super cycle". The key point is that the long logic deduction will provide double space for performance valuation, and the continuous positive feedback of the fundamentals will gradually catalyze the market's optimistic expectations. The situation in the Middle East may pose a risk to geopolitical oil prices, but it does not change the value of airlines and the long logic. It is recommended to seize the opportunity to lay out the aviation "super cycle" in a contrarian manner. The quality of the aviation network determines the profitability and sustainability of traditional airlines. Guotai Haitong's main points are as follows: Airline passenger flow: Strong demand during the Spring Festival travel season, with passenger flow continuing to increase after the holiday During the Spring Festival in 2026, as of March 1st (28 days before the Spring Festival), the overall social mobility volume increased by 5.8% compared to the lunar year, with road transportation up by 5.6%, railways by 8.1%, and aviation by 6.9%. During the Spring Festival, Civil Aviation Administration of China has limited the addition of flights and passenger services by airlines. According to flight management statistics, the average daily number of flights increased by over 5% compared to the same period last year. 1) Before the holiday: Airline passenger flow increased by 5.1%, leading among major transportation methods; 2) During the holiday: Passenger flow increased to 7.6%, with extended holidays boosting family visits and leisure travel, as well as a surge in second trips; 3) After the holiday: Passenger flow increased by 9.8%, as return trips intensified and public and business travel gradually resumed. Airline ticket prices: Post-holiday ticket prices continue to rise, with airline profitability expected in Q1 During the Spring Festival in 2026, the airlines achieved a historical high in passenger load factor, with the estimated domestic ticket prices during the 28-day period before the Spring Festival increasing by about 4-5% compared to the lunar year. 1) Before the holiday: The peak passenger flow was influenced by the increased railway services, leading to a slight increase in ticket prices; 2) During the holiday: Air and high-speed railway passenger flows were segmented, with high load factors supporting a significant increase in ticket prices by nearly 8%, exceeding industry expectations; 3) After the holiday: Airlines pre-sold tickets at low prices to guarantee high load factors, with ticket prices near the closing date increasing better than pre-sales, combined with a low base effect, the upward trend in ticket prices after the holiday continued to be good. According to estimates, the passenger load factor increased by 1-2 percentage points year-on-year in January-February 2026, and the domestic ticket prices including fuel costs increased by about 6% year-on-year; considering a 9% year-on-year decrease in aviation fuel prices, the estimated year-on-year increase in domestic ticket prices (ticket prices minus average fuel costs per person) was over 10%, indicating a significant year-on-year increase in airline gross profit margins. Considering that the impact of important conferences in China after the Spring Festival is expected to be short-lived, the recovery of public and business travel will be faster than in previous years, and it is expected that ticket prices in March will also maintain an upward trend year-on-year. Considering that the transmission of international oil prices to domestic prices will lag by two months, it is expected that the airline profitability in Q1 2026 will significantly improve year-on-year, potentially achieving industry-wide profitability. Escalation of the Middle East situation leads to geopolitical oil price risks, but does not change the value of airlines and the deduction of the super cycle Since 2026, the escalation of the Middle East situation has gradually pushed up oil prices, with the central price of crude oil rising from $60 per barrel to $70 per barrel in Q1; On February 28th, the US launched a military operation against Iran, driving up ticket prices in Europe on the one hand, and exacerbating short-term geopolitical oil price risks on the other. Fuel costs account for nearly 40% of airline costs, and if the average aviation fuel purchase price rises by 10%, it is statically estimated that Air China, China Eastern Airlines, China Southern Airlines, Juneyao Airlines, and Spring Airlines will each reduce net profits by 4 billion, 3.4 billion, 4.1 billion, 520 million, and 460 million respectively. It is important to note that the impact of oil prices on airline profitability is actually determined by supply and demand. Chinese airlines have the highest load factor in the world and the supply and demand continue to improve, indicating that their ability to cope with oil price risks may be better than market expectations. More importantly, oil prices do not change the value of airlines and the long logic. It is believed that this will provide a rare opportunity for contrarian layout. Risk warnings: Geopolitical oil prices, economic fluctuations, policies, dilution from additional share issuance, safety accidents, etc.