Guotai Haitong Securities Co., Ltd. (GTHT) has released a research report stating that recent escalation in Middle East tensions and disruptions to transit through the Strait of Hormuz led to a significant increase in international crude oil prices in early March. In April, China's National Development and Reform Commission (NDRC) also implemented controls on the ex-factory price of domestic jet fuel. The estimated actual price increase was suppressed by over one thousand yuan per ton compared to the formula-based calculation. Although this represents a year-on-year increase of over 70%, the resulting oil price pressure is significantly lower for Chinese airlines compared to their international counterparts. Furthermore, the measures ensure supply stability, which is expected to substantially enhance the competitiveness of Chinese carriers on international routes. The NDRC's intervention in managing jet fuel price pressures means that geopolitical oil price fluctuations do not alter the long-term logic of the aviation super-cycle, and the report suggests seizing this rare contrarian opportunity. GTHT's main views are as follows:
The NDRC's control over the domestic jet fuel price increase alleviates cost pressure on airlines and boosts their international competitiveness. According to the domestic jet fuel ex-factory pricing mechanism, the price is linked to the average Singapore jet fuel price from the previous month and is determined by the NDRC at the beginning of each month using a set formula. Following the recent escalation in Middle East tensions and disruptions in the Strait of Hormuz, international crude oil prices surged in early March 2026. Singapore jet fuel prices experienced an even sharper spike due to direct impacts on the supply chain. The "Oil Price Management Measures" issued by the NDRC in 2016 stipulate that in special circumstances such as abnormal fluctuations in international oil prices, the NDRC can, upon approval from the State Council, suspend, delay price adjustments, or reduce the adjustment幅度. On March 23, 2026, the NDRC already implemented temporary control measures on domestic gasoline and diesel prices, meaning the actual increase was reduced by over one thousand yuan compared to the formula. In April 2026, the NDRC also applied controls to the domestic jet fuel ex-factory price, with the estimated actual increase similarly suppressed by over one thousand yuan per ton. While this is a significant year-on-year rise, the cost pressure is markedly lower than for overseas airlines, and secured supply will significantly aid Chinese carriers in enhancing their competitiveness on international routes.
The domestic fuel surcharge is levied in conjunction with price changes and is estimated to partially cover the increased oil costs. The NDRC reinstated the domestic aviation fuel surcharge mechanism in 2005 to help airlines mitigate rising fuel costs. In 2009, it was clarified that the surcharge would be linked to jet fuel prices, with airlines required to absorb no less than 20% of the cost increase themselves. The unit collection rate was later slightly reduced, and the base oil price was raised to 5,000 yuan per ton in 2015. Following the increase in the domestic jet fuel ex-factory price at the end of March, airlines raised the domestic fuel surcharge for routes under 800 km (inclusive) and over 800 km to 60 yuan and 120 yuan, respectively, effective April 5th (compared to 10/20 yuan in March and April 2025). It is estimated that the domestic fuel surcharge will partially cover the rise in oil prices, though the coverage ratio will vary among airlines due to differences in network structure, cabin configuration, and load factors.
Airlines will employ multiple strategies to cope with oil price pressure, and the actual impact is likely to be less than feared. For domestic routes, the added fuel surcharge, combined with market-based ticket pricing, means the actual pass-through of costs will depend on supply and demand. Over the past two years, low fares have stimulated demand from a large number of price-sensitive travelers; therefore, increases in all-in fares (including fuel surcharge) may lead to some reduction in passenger volume. The year 2026 is expected to see a deepening of efforts against internal competition ("anti-involution"), prompting airlines to rationally and dynamically adjust their target load factors. Furthermore, industry-wide oil price pressure is likely to drive more proactive revenue management strategies. Continued positive supply and demand dynamics will help facilitate the actual pass-through of costs. Variations between peak/off-peak seasons and network/passenger profiles may lead to differences in how oil costs are passed through, but the overall impact is anticipated to be less than concerns suggest.
For international routes, the conflict in the Middle East has significantly affected operations at the three major Asia-Europe hubs: Dubai, Doha, and Abu Dhabi. China-Europe routes are benefiting from both the回流 of traffic through domestic Chinese transfer points and new international transfers, leading to substantial fare increases that are expected to more than offset the rise in oil costs, exceeding expectations. Airlines are actively adjusting their route networks. The fundamental requirement for operating a flight is that the revenue covers variable costs, providing a positive marginal contribution. Rising oil prices significantly increase variable costs. Consequently, airlines are expected to reduce frequencies on low-yield routes based on marginal contribution analysis. Some carriers may seize the strategic opportunity to actively increase capacity on high-yield routes like China-Europe. Efforts are also underway to reduce fuel consumption. Airlines have been continuously introducing new-generation, fuel-efficient aircraft. Amid high oil prices, they are expected to further increase the daily utilization rates of these efficient models and optimize schedules by reducing flights operated by older, less efficient aircraft.
The current geopolitical oil price environment presents a contrarian opportunity for strategic positioning in the super-cycle. China's aviation supply has entered an era of low growth, while demand stands to benefit fully from consumption stimulus measures. Continued positive supply and demand fundamentals will ensure that the impact of oil prices is less than feared, driving profit growth during the "16th Five-Year Plan" period (2026-2030). The NDRC's management of jet fuel price pressures means geopolitical oil prices do not alter the long-term logic of the aviation super-cycle. The report recommends seizing this rare contrarian opportunity and prioritizing carriers with high-quality route networks. Risks include geopolitical oil prices, economic fluctuations, policy changes, equity dilution from secondary offerings, and safety incidents.
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