GTHT has released a research report stating that market-based pricing during the "14th Five-Year Plan" period and a slowdown in fleet growth, coupled with persistent airspace bottlenecks and strict slot control during the "15th Five-Year Plan" period, will lead to continued positive supply-demand dynamics and intensified anti-internal competition. This is expected to ensure that the impact of oil prices is less severe than feared in the short term, driving significant and sustainable profit growth over the next several years. Geopolitical oil price fluctuations do not alter the long-term logic of the aviation "super cycle." High oil prices and seasonal troughs are seen as providing contrarian investment opportunities, with a preference for airlines possessing high-quality route networks, passenger bases, and significant exposure to European routes. Key viewpoints from GTHT are as follows:
Airlines reported substantial year-on-year profit growth in Q1 2026, reflecting a solid recovery in supply and demand. Strong demand during the 2026 Spring Festival travel season and a rapid post-holiday recovery in business and commercial travel, combined with low fleet growth and strict slot control, led to a significant year-on-year reduction in losses and increase in profits for the industry, aided by lower oil prices and higher fares. More importantly, this indicates that supply and demand have recovered well. In Q1 2026, the net profits attributable to shareholders for Air China, China Eastern Airlines, China Southern Airlines, Spring Airlines, and Juneyao Airlines were 1.7 billion yuan, 1.6 billion yuan, 1.5 billion yuan, 980 million yuan, and 440 million yuan, respectively, with Air China leading in year-on-year profit growth.
1) Capacity Investment: In Q1 2026, the combined fleet size of the five major airlines grew only 2.5% year-on-year; ASK increased 7% year-on-year, with domestic ASK up 6% and international ASK up 10%. 2) Passenger Load Factor: The industry's passenger load factor rose 2.2 percentage points year-on-year in Q1 2026, reaching a new record high. Among them, Air China benefited from a low base and the restructuring of Asia-Europe hubs, achieving a leading increase of 4.6 percentage points. 3) Revenue per ASK: In Q1 2026, the figures for Air China, China Eastern Airlines, China Southern Airlines, Spring Airlines, and Juneyao Airlines increased by +3%, +4%, +2%, -2%, and +4% year-on-year, respectively. It is estimated that domestic fares including fuel surcharges rose over 5% year-on-year. Air China, China Eastern, and Juneyao benefited further from significant fare increases on China-Europe routes starting in March, while Spring Airlines' result may be influenced by flight reductions on Japanese routes. 4) Operating Cost per ASK: In Q1 2026, the figures for Air China, China Eastern Airlines, China Southern Airlines, Spring Airlines, and Juneyao Airlines changed by -4%, -2%, -1%, -8%, and +1% year-on-year, respectively, primarily benefiting from an 8% year-on-year decrease in the average ex-factory price of domestic jet fuel. The impact of engine maintenance on Juneyao's operations and unit costs is believed to have peaked and is expected to weaken quarter-by-quarter starting in Q2 2026.
April benefited from the spring holiday effect and significant fare increases on European routes, with oil price pressure transmission potentially better than feared. 1) International oil price increases were transmitted to the domestic market starting in April. Regulatory measures helped curb the increase and ensure supply, alleviating pressure on airlines and significantly enhancing international competitiveness. 2) Domestically, fuel surcharges were raised substantially in April, and market-based pricing ensured ample room for increases in base fares. Positive supply-demand dynamics and anti-internal competition helped actual transmission exceed concerns. Benefiting from the spring holiday reducing the Qingming Festival trough and active business demand during the exhibition season, estimated domestic fares including fuel surcharges rose over 10% year-on-year in April, while domestic passenger traffic declined only slightly by 1%. 3) Internationally, ongoing conflicts in the Middle East continued to affect hubs like Dubai. China-Europe routes benefited from increased domestic and new international transfer traffic, leading to high load factors and significant fare increases since March, which continued into April. As the largest carrier on China-Europe routes, Air China, along with China Eastern and Juneyao which have high revenue exposure to European routes, are well-positioned to potentially exceed expectations in hedging against oil price increases.
The May Day holiday continued the trend of rising fares and declining passenger numbers, with a significant impact from the mid-holiday trough. The Ministry of Transport projected a 4% year-on-year increase in total passenger trips during the May Day holiday period, with road travel up 4.1%, rail travel up 4.8%, but civil aviation down 5.6%. Estimates suggest the industry's passenger load factor decreased slightly by about 1 percentage point year-on-year during the holiday, while domestic fares including fuel surcharges maintained double-digit year-on-year growth, continuing the April trend of higher prices but lower volume. However, the decline in passenger traffic widened, significantly impacted by the mid-holiday trough, potentially due to: 1) Significant fare increases leading to increased diversion to high-speed rail, and high oil prices limiting airlines' ability to stimulate demand with low fares during the trough. 2) A decrease in the proportion of child passengers, possibly due to diversion from spring holidays in various regions in April. 3) Holiday consolidation around the official break and the connection of various regional spring holidays dispersing travel demand. It is noted that the traditional off-peak season follows the holiday, suggesting continued pressure on passenger traffic alongside fare increases.
Risk factors include geopolitical oil prices, economic conditions, industry policies, equity dilution from secondary offerings, and safety incidents.
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