Guolian Minsheng Securities: In April, air ticket prices increased in response to "stress tests." We will keep an eye on any turning point in oil prices and the central price of oil in the medium term.

Guolian Minsheng Securities released a research report stating that April has brought a "stress test" for air ticket price increases, with a mid-term focus on the turning point and pivot point of oil prices. The domestic aviation fuel purchase price is adjusted with a one-month lag, with fuel prices increasing on the 1st of each month and fuel surcharges adjusted on the 5th. After the fuel surcharge increase in April, domestic airline ticket prices will face a "stress test" for price increases. Airlines will judge downstream price acceptance during the sales process and actively view the price increases brought on by rising oil prices as an industry-wide price increase test. If demand feedback is positive, after oil prices fall, it is expected to alleviate airline price competition. However, the risk is that demand is price-sensitive, and airlines may have to choose between passenger volume and ticket prices, facing more pressure from rising oil prices. Main points from Guolian Minsheng Securities: The escalation of Middle East geopolitical conflicts has led to increased volatility in Singapore aviation fuel prices exceeding $200 per barrel, greatly affecting airlines' costs. In early March 2026, the geopolitical conflict between the US and Iran escalated, leading to a decrease in transportation efficiency in the Strait of Hormuz, as well as a tight supply of crude oil and refined oil products in the Asia-Pacific region, resulting in price increases. Brent oil prices surpassed $100 per barrel, and Singapore's aviation fuel export price exceeded $200 per barrel. Fuel costs are the most significant cost item for airlines, accounting for about 30% of total revenue for Chinese airlines. The sustained high oil prices have a significant impact on airline profitability. How does the increase in crude oil prices affect airlines' fuel costs? Airlines' aviation fuel purchase prices are linked to the FOB price of Singapore aviation fuel, which in turn is linked to crude oil prices. China is a major producer and consumer of aviation fuel, relying on imported crude oil for production. The aviation fuel required for airline operations is self-sufficient within the domestic refinery system, forming an industrial structure of "costs outside, demand inside." Domestic aviation fuel is processed by Sinopec refineries, and China Aviation Oil is responsible for transportation, storage, and supply to airlines at domestic airports. Singapore is the center for aviation fuel processing and trade flow in the Asia-Pacific region. The export settlement price of Singaporean aviation fuel can fully reflect the cost of crude oil and reasonable profits for refineries. Therefore, after multiple rounds of reforms, China's aviation fuel pricing is anchored to the FOB price of Singapore aviation fuel, balancing domestic refinery profits and reasonable fuel costs for airlines. The extent to which fuel surcharges cover incremental fuel costs The amount covers 45-60% of the incremental cost, with the bank estimating a net coverage of around 20-30%. Fuel surcharges aim to spread the increase in oil prices among passenger travel volumes in ticket prices. The pricing of fuel surcharges in China is linked to ton-kilometer fuel consumption, flight distance (calculated at 800 kilometers for distances below 800 kilometers and 1500 kilometers for distances above 800 kilometers), and fuel prices (domestic aviation fuel prices starting at over 5000 yuan per ton). The actual coverage of incremental costs by fuel surcharges depends on feedback from downstream price increases. Airlines transfer the increase in oil prices downstream through surcharges, essentially taxing the downstream and causing the demand curve to contract, squeezing out demand. According to China's current fuel surcharge mechanism, the amount of fuel surcharges can cover 45-60% of the incremental cost, with airlines with more seats per aircraft, higher passenger load factors, and higher fuel efficiency fleets having stronger coverage capabilities. In practice, due to limited transmission of downstream price increases, airlines need to balance between declining passenger volumes and overall ticket price increases with surcharges. The bank's estimate is that the net coverage ratio of surcharges to incremental costs is around 20-30%. Risk Warning: Escalation of geopolitical conflicts, significant oil price increases, deviations in calculations, fluctuations in the Renminbi exchange rate.