According to Guotai Haitong Securities, the robust travel demand during the National Day holiday, coupled with significant year-on-year fare increases, along with stable commercial demand and high load factors from November to December, contributed to airlines' performance. Although a slight negative turn in December fares occurred due to increased capacity deployment and base effects, the outstanding performance on European routes is expected to help airlines achieve a substantial year-on-year reduction in losses for the fourth quarter.
In the short term, the extended holiday effect around the New Year's Day holiday is expected to sustain strong air travel demand, leading to significant year-on-year growth in both passenger volume and fares. However, the extended holiday effect around the Spring Festival holiday is projected to be weaker than in previous years. Nevertheless, active pre-holiday commercial travel, combined with the start of the homecoming passenger flow, keeps airline expectations optimistic.
Guotai Haitong's main views are as follows: In terms of 2025 overall volume, China's civil aviation supply and demand continue to recover, with an expected industry-wide turnaround to profitability. Demand is projected to maintain steady growth, with estimated passenger traffic increasing by 5-6% year-on-year. Domestic routes are expected to grow by 4%, while international routes are anticipated to surge by over 20%. Revenue Passenger Kilometers (RPK) are forecasted to increase by 8%.
The core issue remains that the proportion of commercial demand is still below 2019 levels. Airlines continue to prioritize load factor strategies, trading fare levels for volume to ensure passenger growth and higher load factors. Supply has entered an era of low growth, with the fleet size of seven A-share airlines estimated to grow by approximately 3.7% by November 2025 compared to the end of 2024. Increased international deployments further improve turnover, with industry Available Seat Kilometers (ASK) projected to rise by 6% year-on-year.
Load factors have reached a new historical high, increasing by 1.7 percentage points year-on-year, ranking first among globally comparable markets. However, fares remain at historically low levels, with estimated domestic fuel-inclusive fares declining by 2-3% year-on-year. A turnaround occurred starting September, benefiting from the recovery in commercial demand. International fares declined year-on-year in the first half of the year but may see a significant increase in the second half due to strong inbound demand and high load factors.
Profitability is expected to continue improving significantly in 2025, with the industry projected to return to profitability. For the first quarter, despite record passenger volume during the Spring Festival travel rush driven by strong private demand, high base effects and dispersed travel patterns led to an approximate 10% year-on-year decline in domestic fuel-inclusive fares, resulting in limited profit improvement for airlines.
In the second quarter, active commercial travel in April and May exceeded top-down concerns. Well-balanced supply and demand recovery allowed airlines to retain all benefits from reduced fuel costs as profits, leading to a substantial year-on-year reduction in losses. During the third quarter, despite strong private travel demand during the summer peak without additional flights, commercial demand unexpectedly weakened due to temporary factors, preventing the peak season from demonstrating profit elasticity.
Commercial demand resumed growth in September, driving fares into positive territory. Lower oil prices in Q3 offset fare declines, enabling airlines to achieve a slight year-on-year profit increase against the trend. This marks the third consecutive year of exceeding Q3 2019 performance, highlighting profit resilience and upward potential. For the fourth quarter, robust travel during the National Day holiday with significant fare increases, combined with stable commercial demand and high load factors in November and December, positions airlines for continued substantial year-on-year loss reduction, despite a slight negative turn in December fares due to capacity increases and base effects.
Short-term outlook suggests strong air travel during the New Year's Day holiday, with anticipated fare increases during the Spring Festival passenger peak. Peak season performance will be a key industry catalyst, and sustained fundamental positive feedback is expected to fuel market optimism regarding the long-term logic of the aviation sector.
For the 2026 New Year's Day holiday, a significant extended holiday effect is anticipated, ensuring robust air travel and projected notable year-on-year increases in both volume and fares. For the 2026 Spring Festival travel rush, the extended holiday effect is expected to be weaker than in previous years. However, active pre-holiday commercial travel, combined with the start of homecoming passenger flow, supports optimistic airline expectations. Concentrated passenger flows before and after the holiday are expected to benefit airline revenue management, making Spring Festival volume and fare performance highly anticipated.
In the medium to long term, China's aviation industry is poised to enter a "super cycle," with strategic positioning recommended during off-seasons to capture long-term logic. Ticket price marketization achieved during the "14th Five-Year Plan" period, combined with the industry's entry into a low-supply-growth era, sets the stage for steady demand growth and passenger structure recovery to drive fare and profit increases starting in 2026. This upward trend is expected to be sustainable.
The long-term logic is expected to provide dual space for both performance and valuation. Favorable oil prices and exchange rates benefit the aviation sector, while attention should be paid to anti-involution policies and consumption stimulation. Network quality will determine the future profit upside and sustainability for traditional airlines. Overweight ratings are recommended for Air China, Juneyao Airlines, China Eastern Airlines, China Southern Airlines, and Spring Airlines.
Risks include economic fluctuations, policy changes, oil price and exchange rate volatility, equity dilution from additional share issuances, and safety incidents.
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