Gf Securities stated that the three major airlines reported a 7.4% and 10.3% year-on-year increase in supply and demand, respectively, for the first quarter. The passenger load factor rose by 2.3 percentage points year-on-year to 85.5%, which is 3.1 percentage points higher than the 2019 level. Airfares increased compared to the previous year, and pre-sales data for the Labor Day holiday was robust. Against the backdrop of high oil prices, airlines have proactively reduced some inefficient capacity, leading to a marginal contraction in supply and a continued improvement in the industry's competitive landscape. Overall, resilient demand, strong holiday travel activity, combined with capacity reductions, are driving marginal improvements in industry supply and demand, supporting favorable airfare trends. Since the market adjustment in March following the rise in oil prices due to the US-Iran conflict, airline stock prices and valuations have been at relatively low levels, presenting potential contrarian investment opportunities. Key points from Gf Securities are as follows:
In March, industry-wide demand growth outpaced supply growth, with the passenger load factor rising to a high level year-on-year. Domestic routes showed a widening growth margin, while the supply-demand "scissors gap" further expanded on international routes. Based on operational data announcements from six listed airlines in March, total supply and total demand increased by 10.8% and 15.9% year-on-year, respectively, reaching approximately 118.9% and 124.8% of the same period in 2019 levels. The passenger load factor increased by 3.8 percentage points year-on-year to 86.9%, which is 4.1 percentage points higher than the same period in 2019. By route type: Domestic route supply and demand increased by 11.4% and 13.5% year-on-year, respectively, reaching about 125.5% and 128.4% of 2019 levels. The passenger load factor rose by 1.6 percentage points year-on-year to 86.4%, up 1.9 percentage points from 2019. International route supply and demand grew by 9.5% and 22.3% year-on-year, respectively, reaching approximately 107.1% and 119.6% of 2019 levels. The passenger load factor surged by 9.3 percentage points year-on-year to 88.6%, an increase of 9.2 percentage points compared to 2019. Regional route supply increased by 7.5% year-on-year, while demand grew by 15.5% year-on-year; the passenger load factor improved by 5.6 percentage points year-on-year to 81.2%, but was down 1.0 percentage points from 2019.
Performance diverged among airlines in Q1 2026, with Air China showing notable growth. The three major airlines all reported passenger load factors exceeding 2019 levels. According to Q1 operational data from the three major carriers, their combined supply and demand increased by 7.4% and 10.3% year-on-year, respectively. The passenger load factor rose by 2.3 percentage points year-on-year to 85.5%, which is 3.1 percentage points higher than 2019. Among them, Air China's Q1 supply and demand increased by 7.6% and 13.7% year-on-year, respectively. Its domestic and international passenger load factors increased by 3.5 and 7.2 percentage points year-on-year to 85.6% and 83.6%, respectively. In Q1 2026, the overall passenger load factors for Air China, China Eastern Airlines, and China Southern Airlines were up by 3.0, 2.2, and 4.2 percentage points, respectively, compared to 2019. Based on Q1 data from privately-owned airlines, the combined supply and demand for Spring Airlines, Juneyao Airlines, and Hainan Airlines increased by 4.5% and 7.5% year-on-year, respectively. Their combined domestic route supply and demand grew by 6.3% and 8.0% year-on-year, while international route supply and demand changed by -1.4% and +5.5% year-on-year, respectively. By airline, Juneyao Airlines' total supply and demand recovered to 147.2% and 149.7% of 2019 levels, respectively, while Spring Airlines' total supply and demand recovered to 166.5% and 167.4% of 2019 levels, respectively.
Airfares increased year-on-year, and Labor Day pre-sales data was strong. In the context of high oil prices, airlines have actively cut some inefficient capacity, leading to a marginal contraction in supply and a continued improvement in the industry's competitive structure. According to data from Civil Aviation Manager, during the transition period for the 2026 summer/autumn season, the number of canceled domestic flights increased by 15.81% compared to the same period in 2025. On pricing, the average domestic economy class airfare in March was 688.1 yuan, up 5.3% year-on-year from 2025. Pre-sale economy class fares for the Labor Day holiday were 979 yuan, an increase of 9.6% from 2025 and 24.2% higher than the same period in 2019. Meanwhile, an increase in fuel surcharges has been implemented, with rates for domestic routes under 800 km and over 800 km raised to 60 yuan and 120 yuan, respectively, effective April 5th. Overall, resilient demand, strong holiday travel activity, and capacity reductions are contributing to marginal improvements in industry supply and demand, supporting positive airfare trends. Since the market adjustment in March following rising oil prices due to the US-Iran conflict, airline stock prices and valuations have been at relatively low levels, highlighting potential contrarian investment opportunities. Top picks include Air China, Spring Airlines, Juneyao Airlines, Hainan Airlines Holdings, and China Express Airlines. Risks include uncertainty in tariff policies, economic downturn, safety incidents, and a sharp rise in oil prices.
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