Summary of Huaxia Airlines Conference Call Company Overview - **Company**: Huaxia Airlines - **Date**: December 9, 2025 Key Points Industry and Market Performance - Huaxia Airlines' stock price increased by 30% from January to November 2025, leading among listed airlines [2] - Civil aviation branch subsidies reached approximately CNY 3,100 per hour in the first 11 months, a year-on-year increase of over 10%, and more than double compared to pre-pandemic levels [2][3] - The airline's aircraft utilization rate is expected to be 8.1 hours for the year, with a potential increase to 8.5 hours by 2026, indicating operational efficiency improvement [2][3] Operational Challenges - The company faces a shortage of captains, with a 20% gap for the C909 model, requiring 70 but currently having only 53 [4][11] - Maintenance issues with Pratt & Whitney engines affect operational efficiency, with 22 engines impacted; 15 are expected to be resolved by the end of next year [4][5][10] - Fuel price sensitivity remains unchanged; a CNY 1,000 increase per ton affects profits by CNY 450 million [4][26] Financial Performance - For the first three quarters of 2025, Huaxia Airlines reported a net profit of CNY 620 million, benefiting from capacity recovery and revised branch aviation subsidy management [3] - Average quarterly subsidies for the first three quarters were CNY 160 million, showing a year-on-year increase of over 25% [6][22] - The company’s asset-liability ratio is approximately 83.16%, with plans to reduce it to below 75% [24][25] Fleet and Capacity Management - The fleet size reached 78 aircraft, expected to grow to 80 by year-end, including 31 A320s, 33 CRJ900s, and 16 C909s [2][7] - Plans to dispose of CRJ900s while introducing 3 A320s and 6 C909s, potentially increasing total fleet size by 1-2 aircraft [7] Pricing and Revenue Trends - Ticket prices turned positive year-on-year starting in September, with an increase of 3-4% [4][6] - November's passenger load factor reached 82%, a record high, with an expected annual load factor exceeding 82% [6][29] - The company anticipates ticket prices to stabilize in 2026, maintaining a cautious outlook [4][18] Strategic Developments - Post-scheduling adjustments resulted in a 4.5% increase in flight slots, with significant growth in the Northwest (82%) and East China (nearly 40%) regions [8] - The company is exploring new markets in East and Central China, such as Quzhou and Wuhu, with potential for future operations [16] Competitive Landscape - Huaxia Airlines differentiates itself from competitors like Chengdu Airlines by focusing on branch aviation, with a lower proportion of trunk routes [12] - Despite competition in the Xinjiang market, the company maintains a stable operational network and government support [11][13] Future Outlook - The company aims to enhance aircraft utilization to nearly 9 hours by the end of 2026, with a projected capacity growth of around 10% [28] - The anticipated operational strategy includes dual aircraft operation with A320 and C909 models to reduce costs and improve efficiency [28] - The overall industry is expected to see continued improvement in passenger load factors, although Huaxia Airlines remains cautious about future growth [29]

Investment Rating - The investment rating for the company is "Buy" and is maintained [9] Core Insights - The company reported a revenue of 2.124 billion yuan in Q3 2025, representing a year-on-year increase of 9.33% - The net profit attributable to shareholders reached 370 million yuan, marking a year-on-year increase of 31.6% and a growth of 63.7% compared to Q3 2019 [5][7] Summary by Sections Event Description - The company released its Q3 2025 report, showing a revenue of 2.124 billion yuan, up 9.33% year-on-year, and a net profit of 370 million yuan, up 31.6% year-on-year, with a 63.7% increase compared to Q3 2019 [5][6] Event Commentary - The company is poised for recovery and growth due to several factors: 1. Short-term: The pilot shortage is being addressed, leading to improved aircraft utilization 2. Mid-term: Significant subsidies for regional routes are expected to stabilize profitability 3. Long-term: Collaboration with mainline carriers to monetize secondary traffic effectively - Projected net profits for 2025-2027 are 650 million, 1.03 billion, and 1.23 billion yuan, with corresponding P/E ratios of 20.4X, 13.0X, and 10.8X [7] Financial Performance - The company experienced a 15.4% year-on-year increase in Available Seat Kilometers (ASK) and a 19.4% increase in Revenue Passenger Kilometers (RPK) in Q3 2025 - The passenger load factor improved by 2.9 percentage points to 86.4% year-on-year - However, the revenue per passenger kilometer decreased by 8.4% due to external factors affecting domestic travel demand and strategic adjustments to the route network [7][12] Cost Management - Non-fuel costs were effectively diluted, with a 5.75% year-on-year decrease in unit non-fuel costs to 0.261 yuan/ASK - The company recorded a significant reduction in fuel costs due to falling global oil prices, leading to a total operating cost of 1.832 billion yuan, up 5.9% year-on-year [12][18]

Core Viewpoint - Huaxia Airlines adopts a unique strategy by focusing on connecting remote small cities rather than pursuing popular routes or joining airline alliances, positioning itself as the only independent regional airline in the A-share market [2][3]. Group 1: Business Strategy - The company has a clear strategy to focus on underserved regions, with 70% of its passengers being first-time flyers, indicating a strong potential market for growth [2][9]. - Huaxia Airlines has experienced a significant turnaround, with a 102.17% year-on-year increase in net profit attributable to shareholders in the first three quarters of the year [2][3]. - The airline's focus on regional routes is complemented by government policies aimed at supporting air travel in remote areas, which helps to enhance accessibility [5][10]. Group 2: Market Dynamics - The demand for air travel is increasing not only in major cities but also in smaller cities, leading to more connections between small cities [4][5]. - The company has strategically avoided competing in saturated markets, instead opting to meet the needs of underserved areas, which presents less competition and a more stable demand [6][10]. Group 3: Operational Challenges - The cost of acquiring customers is high due to the need for extensive marketing efforts in rural areas, and operational costs are elevated because of the small size of regional aircraft [9][10]. - Government subsidies play a crucial role in sustaining the airline's operations, allowing it to maintain lower ticket prices while developing a reliable service that encourages habitual air travel among new passengers [10][11]. Group 4: Future Outlook - The airline is evolving its strategy from merely connecting regions to creating a more integrated travel ecosystem, enhancing the overall travel experience for customers [19][20]. - Huaxia Airlines aims to innovate and expand its partnerships to improve operational efficiency and profitability, while also addressing the changing consumer preferences in the tourism market [22][23].

Core Viewpoint - Huaxia Airlines adopts a unique strategy by focusing on connecting remote small cities rather than pursuing popular routes or joining airline alliances, positioning itself as the only independent regional airline in the A-share market [1][2]. Group 1: Business Strategy - The company has a clear strategy to focus on regional aviation, targeting areas with limited transportation options, which has led to a significant increase in first-time flyers, with 70% of passengers being new to air travel [1][8]. - Huaxia Airlines has experienced a turnaround, with a 102.17% year-on-year increase in net profit attributable to shareholders in the first three quarters of the year, and its stock price reaching a two-year high [1][2]. - The CEO acknowledges past temptations to shift focus but believes overcoming challenges has strengthened the company's position in the market [1][5]. Group 2: Market Dynamics - The demand for air travel is evolving, with increasing needs from smaller cities, leading to more connections between small cities rather than just between major hubs [4]. - Government policies, such as subsidies for regional airlines, are driving the growth of the regional aviation sector, encouraging airlines to provide solutions for remote areas [4][11]. - The competitive landscape is shifting, with Huaxia Airlines opting not to engage in saturated markets but instead focusing on underserved regions, which presents a unique opportunity [4][5]. Group 3: Operational Challenges - The cost of acquiring customers in the regional market is high due to the need for extensive marketing efforts to reach potential first-time flyers [8][11]. - Operational costs are elevated due to the requirement of a captain and two co-pilots for each flight, leading to higher per-passenger costs [8]. - The sustainability of government subsidies is crucial for the viability of regional airlines, as they help initiate and stabilize operations in less accessible areas [11]. Group 4: Future Outlook - The company is transitioning from merely connecting regions to creating a more integrated travel experience, reflecting a shift in strategy towards enhancing the overall travel ecosystem [19][20]. - Huaxia Airlines aims to leverage its unique position to innovate and build partnerships that enhance operational efficiency and profitability [20].

Investment Rating - The report maintains a "Buy" rating for the company, indicating an expected relative price increase of over 15% compared to the benchmark index within the next 6 to 12 months [6][9]. Core Insights - The company reported a net profit attributable to shareholders of 620 million yuan for the first three quarters of 2025, a year-on-year increase of 102%. The net profit for Q3 alone was 369 million yuan, up 32% from the previous year [6]. - The company has increased its fleet by 5 aircraft, bringing the total to 80 by the end of September 2025, with 61% being regional aircraft [6]. - The company experienced a 19.27% increase in available seat kilometers (ASK) and a 24.23% increase in revenue passenger kilometers (RPK) year-on-year for the first three quarters of 2025 [6]. - The unit cost continued to decline due to lower fuel prices and operational recovery, with Q3 unit ASK revenue at 0.4545 yuan, down 5.3% year-on-year, while unit ASK operating costs decreased by 8.2% to 0.3921 yuan [6]. Financial Forecasts and Valuation - The company’s revenue is projected to grow from 6.696 billion yuan in 2024 to 9.649 billion yuan in 2027, with a compound annual growth rate (CAGR) of approximately 12% [3]. - The net profit attributable to shareholders is expected to rise from 613 million yuan in 2025 to 1.142 billion yuan in 2027, reflecting a significant growth trajectory [3]. - The price-to-earnings (P/E) ratio is forecasted to decrease from 22.5x in 2025 to 12.1x in 2027, indicating improving valuation metrics as earnings grow [3]. Company Overview - The total share capital of the company is approximately 1,278.24 million shares, with a market price of 10.80 yuan, resulting in a market capitalization of approximately 13.805 billion yuan [4].

Investment Rating - The investment rating for the company is "Buy" and is maintained [10]. Core Views - The company has returned to a growth trajectory with significant year-on-year profit increases, achieving a net profit of 2.5 billion yuan in the first half of 2025, which is an increase of 858.95% compared to the previous year [2][6]. - The company’s operational metrics show strong growth, with ASK (Available Seat Kilometers) increasing by 19.3% and RPK (Revenue Passenger Kilometers) increasing by 26.3% in Q2 2025 [10]. - The company is expected to achieve net profits of 700 million yuan, 1.01 billion yuan, and 1.21 billion yuan for the years 2025, 2026, and 2027 respectively, with corresponding PE ratios of 17.9X, 12.4X, and 10.3X [10]. Summary by Sections Financial Performance - In the first half of 2025, the company reported total revenue of 36.1 billion yuan, a 12.4% increase year-on-year, and a net profit of 2.5 billion yuan, reflecting a substantial increase [2][6]. - For Q2 2025, the company achieved revenue of 18.4 billion yuan, up 15.1% year-on-year, and a net profit of 1.69 billion yuan, which is an increase of 1.7 billion yuan compared to the previous year [2][6]. Operational Metrics - The company’s passenger load factor improved significantly, with a year-on-year increase of 4.6 percentage points to reach 83.2% in Q2 2025 [10]. - The company’s unit non-fuel cost was recorded at 0.263 yuan/ASK, a year-on-year increase of 0.98%, primarily due to engine overhaul cycles [10]. Strategic Outlook - The company is positioned to benefit from a narrowing pilot shortage and increased capacity utilization, which is expected to enhance growth prospects [10]. - The focus on regional routes and government subsidies for branch lines is anticipated to provide more stable mid-term profitability [10].

Core Insights - The overall accessibility of regional aviation in China is improving, with significant enhancements in connectivity to county-level cities and a notable increase in passenger throughput at regional airports [1][2][4] Group 1: Accessibility Improvements - By 2024, the accessibility time for major and regional cities to national prefecture-level cities will be 13.8 hours and 25.4 hours respectively, showing improvements of 2.0% and 2.7% compared to 2023 [1] - Accessibility for county-level cities has improved by 4.8% compared to 2023, surpassing the 1.2% increase for prefecture-level regional cities [1] - Regions such as Northwest, Xinjiang, and North China have seen significant improvements in accessibility, with increases of 11.7%, 7.5%, and 7.1% respectively [1] Group 2: Market Drivers - The growth of regional aviation is supported by economic growth and the development of the tourism industry, which has led to increased demand for travel from smaller cities [2] - There is a notable rise in passenger throughput at regional airports, with some experiencing over 50% growth compared to the previous year, particularly during peak travel seasons [2] Group 3: Service Quality and Regulation - The "Self-Regulation Convention for Air Passenger Transport" has been introduced to address market issues and improve service quality, emphasizing compliance with laws and enhancing customer service [4][5] - The convention encourages airlines to focus on service quality as a core development goal and to invest in technology and service innovations [4][5] Group 4: Future Potential - By 2030, passenger throughput at regional airports is expected to reach 177 million, with domestic aircraft expected to capture over 50% of the regional market [6] - Innovations in hydrogen and electric regional aircraft are anticipated to reshape the industry landscape [6][7] - Increased financial support from the government for regional aviation is expected to alleviate operational pressures on airlines and reduce travel costs for passengers [7][8]

Core Viewpoint - The company reported strong performance in 1H25, with revenue and net profit significantly increasing compared to the previous year, driven by improved passenger load factor, declining oil prices, and increased government subsidies [1] Financial Performance - In 1H25, the company achieved revenue of 3.61 billion yuan, a year-on-year increase of 12.41%, and a net profit of 251 million yuan, compared to 26 million yuan in 1H24 [1] - For 2Q25, revenue reached 1.836 billion yuan, reflecting a year-on-year growth of 15.07% and a quarter-on-quarter increase of 3.48%, with net profit at 169 million yuan, compared to 1.48 million yuan in 2Q24 and 82 million yuan in 1Q25 [1] - The company confirmed other income of 381 million yuan in 2Q25, with unit ASK other income increasing by 19% year-on-year and 1% quarter-on-quarter [1] Operational Trends - The company expects continued strong performance in 3Q25, with capacity growth projected in the low double digits and a slight improvement in passenger load factor [2] - The average ex-factory price of aviation kerosene is anticipated to decline by 11% year-on-year in 3Q25 [2] Profit Forecast and Valuation - The company has raised its net profit forecasts for 2025 and 2026 by 4% to 639 million yuan and 947 million yuan, respectively, primarily due to improved passenger load factor assumptions and increased other income [3] - The current stock price corresponds to a P/E ratio of 18.4 times for 2025 and 12.4 times for 2026, with a target price increase of 21% to 11.1 yuan based on a 15 times P/E for 2026 [3]

Investment Rating - The report maintains a "Buy" rating for the company [10]. Core Views - The company is expected to return to its historical growth trajectory due to several factors: 1) Short-term: The pilot shortage is gradually being resolved, leading to improved aircraft utilization [2][8]. 2) Mid-term: Significant subsidies for regional airlines are expected to provide a safety net amid industry downturns, with a focus on underdeveloped regions benefiting from new subsidy policies [2][8]. 3) Long-term: The company aims to leverage partnerships with mainline carriers to monetize regional traffic through joint products, utilizing excess capacity from mainline airlines [2][8]. Summary by Sections Introduction: The "Running Ahead" Mystery of Overseas Regional Airlines - Regional airlines are essential in large countries, acting as vital transportation links across vast territories, with North America holding a 55% market share globally [20][21]. Strong Monopoly: Low-Cost Supply Creates Dominant Structure - The regional airline market has significant growth potential due to its vast geographical coverage and the unique demand characteristics that differentiate it from mainline carriers [6][53]. Stability: Meeting Demand and Transferring Risks - Regional airlines exhibit stable long-term profitability akin to utility companies, effectively managing demand fluctuations and operational costs through strategic agreements with mainline carriers [7][53]. The Alpha of Huaxia Airlines: Turning Point Approaches - Huaxia Airlines, as a leading regional carrier in China, benefits from government support and a focus on cost-effective operations, positioning it for substantial growth in the coming years [8][7]. Investment Recommendations: Restarting Growth - The company is projected to achieve net profits of 700 million, 1 billion, and 1.21 billion yuan from 2025 to 2027, with corresponding P/E ratios of 15.8X, 11.0X, and 9.1X [2][8].

Group 1 - The core viewpoint of the article highlights the explosive growth of Huaxia Airlines, which is attributed to its unique positioning as a "regional specialist" in the domestic market, leading to significant profitability amidst challenges faced by major airlines [2][3]. - Huaxia Airlines is expected to achieve a net profit attributable to shareholders of 220 million to 290 million yuan for the first half of 2025, representing a year-on-year increase of 741% to 1009%, marking its best half-year report since going public [3]. - Approximately one-third of Huaxia Airlines' revenue comes from "government charter" agreements, providing stable income while transferring the risk of passenger and cargo operations to local governments [2]. Group 2 - The airline's unique business model is benefiting from favorable policy changes, as the central government increases support to alleviate local government debt risks, which is expected to expedite and enhance the financial support for Huaxia Airlines [2]. - Huaxia Airlines has established a strong market presence, reaching 43% of domestic regional destinations and maintaining a 62% share of unique routes, significantly higher than the average of 12% for major airlines [2][4]. - The average ticket price for unique routes is 0.52 yuan per seat kilometer, which is notably higher than the 21% lower price for shared routes, indicating a stable pricing environment for Huaxia Airlines [4].