Guotai Haitong Securities Co., Ltd. (GTHT) has released a research report stating that high fuel prices during the Q2 off-peak season in 2026 put pressure on industry-wide operations, with an estimated pass-through rate exceeding 50%. A significant surge in ticket prices on China-Europe routes helped the fuel cost pass-through exceed expectations. It is anticipated that demand for family travel during the summer peak season will remain resilient, with passenger traffic expected to reach new highs and operational improvements on the horizon. The growth potential for air travel demand is substantial, supported by consumption stimulus and visa exemptions for multiple countries, ensuring continued steady demand growth. Improving supply-demand dynamics will drive the long-term logic of profitability growth. The report suggests seizing opportunities to position for this long-term logic while expectations and stock prices are low, favoring airlines with high-quality route networks and passenger bases. The main points from Guotai Haitong Securities Co., Ltd. are as follows:
Major Airlines: Nearly 60% of Q2 Fuel Costs Passed Through, High Demand on Europe Routes Beats Pessimistic Forecasts
Following the release of preliminary earnings by the three major airlines, estimates indicate that Air China Ltd, China Eastern Airlines Corporation Limited, and China Southern Airlines Company Limited reported Q2 net losses attributable to shareholders of approximately 4.1, 3.7, and 5.2 billion yuan respectively (median estimates). High fuel prices during the Q2 low season pressured industry-wide operations, but a notable surge in ticket prices on China-Europe routes helped major carriers pass through fuel costs better than expected. It is estimated that major airlines consumed about 2 million tons of fuel in the quarter. With the domestic jet fuel ex-factory price in Q2 2026 up approximately 90% year-over-year, a static calculation suggests a quarterly fuel cost increase of around 10 billion yuan year-over-year. The net profits of Air China Ltd, China Eastern Airlines Corporation Limited, and China Southern Airlines Company Limited decreased by approximately 4.3, 3.3, and 4.4 billion yuan year-over-year, respectively. The firm estimates that nearly 60% of the high fuel costs were passed through to consumers, which is better than pessimistic expectations. 1) Domestic: Passing through high fuel costs was challenging during the Q2 low season. Airlines generally raised prices and reduced flight frequencies, with trunk routes benefiting from resilient business and commercial passenger demand, leading to better fuel cost pass-through than the broader industry. 2) International: Conflicts in the Middle East led to the suspension of hubs like Dubai, benefiting China-Europe routes due to increased domestic and international connecting traffic, resulting in significantly higher ticket prices. It is estimated that the three major airlines hold over a 50% share on China-Europe routes, fully benefiting in Q2 and aiding overall fuel cost pass-through.
Juneyao Airlines Co., Ltd.: Q2 Fuel Cost Pass-Through Rate Nears 70%, Significantly Outperforming Industry and Expectations
The company's preliminary earnings indicate it remained profitable in the first half of 2026, recording a net profit attributable to shareholders of 140-210 million yuan. It is estimated that Q2 saw a loss of 230-300 million yuan, which is better than industry and market expectations. The company's estimated quarterly fuel consumption is around 300,000 tons. A static calculation suggests its Q2 2026 fuel costs increased by approximately 1.4 billion yuan year-over-year, while its Q2 profit decreased by only 400-500 million yuan year-over-year. The firm estimates its fuel cost pass-through rate reached 70%, significantly outperforming the industry. On one hand, the company's flight reductions in Q2 were less than the industry average, with domestic ASK still showing slight year-over-year growth. This is attributed to route network optimization and reductions in lower-tier routes since 2025 due to aircraft engine maintenance, demonstrating the resilience of its high-quality route network compared to the industry. On the other hand, the company has cultivated its Europe routes for years, with estimated revenue from Europe routes exceeding 10%. It fully benefited from the high demand on Europe routes in Q2, with fare increases surpassing the industry average. The impact of aircraft engine issues peaked in 2025 and is expected to gradually diminish quarter by quarter in the second half of 2026. The gradual recovery of operational efficiency in the future will help accelerate the realization of the significant profit potential of its high-quality route network.
Summer Travel Season: Family Travel Shows Resilience Despite Late Start, Fuel Price Drop and Record Traffic Point to Operational Improvement
Airlines saw strong demand for secondary travel during the 2026 Spring Festival travel rush, and demand (volume and price) maintained year-over-year growth even under high Q2 fuel prices. Demographic tailwinds for air travel continue into the "15th Five-Year Plan" period, and family travel during the summer peak is expected to remain resilient. Influenced by later school holidays and localized extreme weather, the start of the 2026 summer travel passenger flow was later than usual, turning positive year-over-year in the second week of July. As the impact of recent typhoons has weakened, ticket issuance and passenger traffic have grown rapidly. Domestic passenger traffic has reached a new historical high for the same period, with the year-over-year growth rate expanding. The passenger load factor increased by 2 percentage points year-over-year to over 86%. It is estimated that domestic fares including fuel surcharges fell nearly 10% year-over-year, reflecting relatively weaker demand. The domestic jet fuel ex-factory price in July fell over 20% compared to Q2. Considering recent oil price volatility, it is estimated that domestic fuel prices during the summer season will still be up over 40% year-over-year. The firm expects airlines to maintain high flight operation rates during the summer season despite fuel price pressure, with passenger traffic and load factors increasing year-over-year. It suggests monitoring subsequent trends in fare improvements, as operational enhancements for airlines are anticipated.
Long-Term Growth in Air Travel Demand to Drive Investment Thesis, Focus on Timing Bottom-Fishing Opportunities
The aviation industry is one of the few sectors with a compelling long-term growth narrative. Fare marketization was achieved during the "14th Five-Year Plan" period, and the "15th Five-Year Plan" ushers in an era of low supply growth. The growth potential for air travel demand is vast, supported by consumption stimulus and visa exemptions for multiple countries, ensuring continued steady demand growth. Improving supply-demand dynamics will drive the long-term logic of profitability growth. The report suggests seizing opportunities to position for this long-term logic while expectations and stock prices are low, favoring airlines with high-quality route networks and passenger bases. It recommends Air China Ltd, China Eastern Airlines Corporation Limited, Juneyao Airlines Co., Ltd., Spring Airlines Co., Ltd., and China Southern Airlines Company Limited.
Risk warnings include geopolitical factors, oil prices, economic conditions, industry policies, equity dilution from share issuances, and safety incidents.
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