Group 1 - The core viewpoint is that the aviation industry is expected to benefit from the Civil Aviation Administration's "anti-involution" policy, which may optimize the competitive structure and improve airline profitability in the long term [1] - The global aviation market is experiencing a normalization in growth, with a 5.1% year-on-year increase in global passenger turnover (RPK) in the first half of 2025, driven by higher demand than capacity growth [2] - The U.S. airline industry is stabilizing, with a profit margin of 3.6% in the first half of 2025, reflecting a 0.9 percentage point increase year-on-year, despite a decline in ticket prices [3] Group 2 - The European aviation market faces uncertainties, with ticket prices showing volatility; however, core markets are expected to see improvements in profitability and shareholder returns [4] - In Asia, particularly in Southeast Asia and Japan, passenger traffic continues to grow, with significant increases in airport throughput compared to pre-pandemic levels [5]

Investment Rating - The report maintains an "Overweight" rating for the aviation sector [6] Core Viewpoints - The domestic airline supply continues to contract year-on-year, with a 3.7% decrease, which may support an upcoming improvement in the domestic aviation market [2][3] - The first quarter of 2025 is expected to see continued pressure on airline profitability due to weak ticket prices, despite high passenger load factors [4] - The impact of reciprocal tariffs on the aviation sector remains to be observed, particularly regarding supply constraints and cost increases for aircraft and materials [5] Summary by Sections Supply and Demand Dynamics - In March 2025, domestic airline supply decreased by 3.7%, while international supply increased by 25.2%, indicating a shift in capacity allocation [3] - The overall passenger load factor for major airlines improved by 1.9 percentage points to 83.3% [3][4] Financial Performance - The average ticket price for domestic flights fell by 11.3% year-on-year to 753 RMB, contributing to a challenging profit environment for airlines in Q1 2025 [4] - Despite the decline in ticket prices, the report anticipates that low supply growth will eventually lead to improved pricing power for airlines [4] Recommendations - The report recommends several airlines for investment, including China National Aviation (753 HK), China Eastern Airlines (670 HK), and China Southern Airlines (1055 HK), all rated as "Buy" with target prices set above current market levels [9][24]