Aviation Stocks Decline in Afternoon Trading as Domestic Fuel Surcharge Rises; Morgan Stanley Predicts Delayed Industry Upturn

Aviation stocks moved lower in the afternoon session. At the time of writing, CHINA EAST AIR (00670) fell 3.64% to HKD 3.97. CHINA SOUTH AIR (01055) declined 2.81% to HKD 4.15. AIR CHINA (00753) dropped 1.18% to HKD 5.02.

The decline follows reports that domestic aviation fuel surcharges will be increased again starting May 16th. For flight segments of 800 kilometers or less, the surcharge will rise from 60 yuan to 90 yuan. For segments over 800 kilometers, it will increase from 120 yuan to 170 yuan, representing hikes of 30 yuan and 50 yuan, respectively. After this adjustment, domestic fuel surcharges have reached a historical high.

Morgan Stanley released a research note stating that while the energy shock has led to a deterioration in the fundamentals of Chinese airlines, related negative factors are likely already reflected in stock prices. The bank estimates that the current increase in airfare prices is insufficient to cover rising costs, indicating short-term profit margins will remain under pressure. Demand is also being affected by the higher ticket prices.

The bank's base case scenario forecasts that aviation fuel prices will normalize to between $100 and $110 per barrel by the end of 2026. Consequently, the aviation industry's upward cycle is expected to be delayed, with a recovery not anticipated until 2027.