GUOTAI HAITONG SECURITIES·2025-07-31 12:31Investment Rating - The report provides an "Increase" rating for the aviation industry, indicating a potential growth of over 15% relative to the CSI 300 index [27]. Core Insights - The aviation industry is experiencing a steady improvement in supply and demand, leading to significant reductions in losses. The summer travel season has shown unexpected weakness in business travel, but the long-term logic of the aviation sector remains intact, with expectations of benefiting from a "reverse internal competition" strategy [2][3]. Summary by Sections Supply and Demand Dynamics - In Q2 2025, domestic supply maintained low growth with 107 new aircraft introduced, resulting in a net increase of only 52 aircraft. The industry’s Available Seat Kilometers (ASK) is estimated to have grown by 6.7% year-on-year [3]. - Domestic demand showed a steady recovery, with domestic passenger traffic increasing by 5.5% in Q2, while the average domestic ticket price (including fuel) remained stable compared to Q1 [3][9]. Financial Performance - The industry significantly reduced losses in Q2, with passenger load factors improving by 1.9 percentage points year-on-year, reaching a historical high for the same period. The average domestic fuel price decreased by 17% year-on-year, contributing to profitability [3][9]. - The report estimates that the industry may achieve profitability in May, with major airlines expected to report substantial reductions in losses for Q2 [3]. Summer Travel Season Insights - The summer travel season has seen a 3% year-on-year increase in passenger traffic, although ticket prices have decreased by 4-5%, which is lower than previous expectations. The supply growth remains limited due to a slight increase in fleet size and strict flight scheduling by the Civil Aviation Administration [3]. - There is a notable increase in leisure travel, particularly among families and young travelers, while business travel has unexpectedly weakened [3]. Long-term Outlook - The report emphasizes that the aviation industry is entering a low-growth supply era, but the medium-term growth trend remains stable. The anticipated policies aimed at reducing excessive low pricing are expected to support profitability recovery [3]. - The report recommends a contrarian investment approach in the aviation sector, highlighting the potential for significant earnings recovery in 2025, with specific recommendations to increase holdings in China National Aviation, Spring Airlines, and others [3][22].