GF SEC: Significant year-on-year improvement in passenger load factor, gradual improvement in volume and price in the aviation industry.

GF SEC released a research report stating that the reduction in fuel surcharges in August further lowers the cost of air travel for residents. The overall passenger flow during the summer travel season has shown significant growth, with improvements in both load factor and ticket prices compared to the previous year. Considering that mid to late August will still be in the phase of return trips and the release of staggered travel demand, demand is expected to remain resilient in the latter part of the summer travel season. The growth rate of travel demand in the summer of 2026 is forecasted to exceed the growth rate of flight volume, driving a rise in average load factor compared to the same period in 2025. Regarding prices, ticket prices have stabilized and are on the rise year-on-year, but there is still room for recovery. Since August 5, the fuel surcharges for domestic routes of 800 kilometers (inclusive) and below, as well as for segments over 800 kilometers, have been reduced to 40 yuan and 70 yuan, respectively, a decrease of 10 yuan and 30 yuan compared to before, which helps to lower the overall travel costs for passengers. Considering that mid to late August will still be in the phase of return trips and the release of staggered travel demand, the overall demand during the summer travel season is expected to remain resilient, with a continued trend of improvement in load factor and ticket prices year-on-year. On the supply side, the global aircraft supply chain continues to be tight, with a slowdown in the pace of new aircraft deliveries, and the logic of mid- to long-term capacity supply constraints in the industry remains unchanged. GF SEC's main views are as follows: In July, the supply and demand across the industry turned from a decline to an increase year-on-year, with demand growth outpacing supply, leading to an expanded improvement in load factors year-on-year. Notably, domestic routes showed a clear recovery, while the growth rate of supply and demand for international routes accelerated. According to the major operating data announcements from six listed airlines for July, the total supply and total demand for the six listed airlines increased by 4.1% and 7.1% year-on-year, respectively (with Air China Limiteds figures being inclusive of Shandong Airlines, the same below), with respective figures about 122.0% and 126.4% of those in the same period of 2019; the load factor improved by 2.4 percentage points to 86.1%, an increase of 3.0 percentage points compared to the same period of 2019. Looking at individual routes, the supply and demand for domestic routes increased by 3.6% and 6.4% year-on-year, respectively, approximately 131.0% and 135.3% of the figures from 2019; the load factor improved by 2.3 percentage points to 87.2%, an increase of 2.8 percentage points compared to 2019. For international routes, supply and demand increased by 5.9% and 9.4% year-on-year, respectively; the load factor improved by 2.7 percentage points to 83.3%, an increase of 2.9 percentage points compared to the same period of 2019. The supply and demand for regional routes decreased by 3.1% and 0.8%, respectively, with the load factor improving by 1.9 percentage points to 81.0%. In July, the performance of airlines was differentiated, with the three major airlines experiencing faster demand growth, while private airlines maintained a higher load factor. Spring Airlines continued to lead in load factor, with significant improvements for Air China and Lucky Air. According to the major operating data announcements for July from the three major airlines, their total supply and demand increased by 4.4% and 7.8% year-on-year, respectively, with a load factor improving by 2.6 percentage points to 85.7%; specifically, the demand and supply for international routes increased by 8.0% and 11.7% year-on-year, respectively, with a load factor up by 2.8 percentage points to 83.7%. Private airlines Spring Airlines, Lucky Air, and Hainan Airlines together saw their supply and demand increase by 2.8% and 4.5% year-on-year, respectively, with a load factor improving by 1.4 percentage points to 87.6%; for international routes, supply and demand decreased by 4.0% and 1.4% year-on-year, respectively, while the load factor improved by 2.2 percentage points to 81.3%. Looking at individual airlines, Spring Airlines overall load factor increased by 1.5 percentage points to 93.3%, maintaining its lead; Air China Limiteds overall load factor increased by 4.9 percentage points to 85.0%, marking the highest improvement among the six airlines, with the load factor for international routes improving by 6.1 percentage points to 83.9%. Risk Reminder There are uncertainties related to tariff policies, economic downturns, safety incidents, and surges in oil prices.