Core Viewpoint - The aviation industry, particularly the three major airlines, has shown significant improvement in profitability and cash flow in Q3 2025 compared to the same period in 2024, driven by favorable oil prices and effective fare management [1][5]. Group 1: Financial Performance - In Q3 2025, the three major airlines reported a total net profit of 10.27 billion, an increase from 9.19 billion in Q3 2024 [1]. - For the first three quarters of 2025, the cumulative net profit of the three major airlines reached 4.47 billion, a significant improvement from a net loss of 0.68 billion in the same period last year [1]. - The operating net cash flow for Q3 2025 totaled 50.61 billion, significantly higher than 39.89 billion in Q3 2024, with a cumulative cash flow of 95.33 billion for the first three quarters, surpassing 83.98 billion in 2024 [1]. Group 2: Domestic Routes - The capacity growth for major airlines on domestic routes has been notably low, with year-on-year growth rates of 2.7%, 1.8%, and 1.6% for the months of July to September [2]. - The passenger load factor for major airlines in Q3 showed a lower year-on-year increase compared to Q1 and Q2, although there was a recovery in September [2]. - Airlines are prioritizing maintaining high load factors over increasing them further during peak seasons, as the revenue from fare increases is more beneficial [2]. Group 3: International Routes - The growth rate of capacity for international routes has significantly slowed, with a stable operational state being established [3]. - The recovery rate for flights to Thailand remains low, while routes to Japan and South Korea have shown higher recovery levels [3]. - The international passenger load factor has experienced reduced seasonal volatility compared to the previous year, indicating a gradual resolution of capacity surplus issues [3]. Group 4: Aircraft Introduction - The three major airlines are on track to meet their aircraft introduction plans, with 118 aircraft added in the first three quarters, accounting for 61% of the annual target [4]. - The actual number of aircraft retired by September was 47, which is 59% of the planned retirements for the year, indicating a balanced approach to fleet management [4]. - The net increase in aircraft for the three major airlines is expected to be around 4% for the year, reflecting a recovery from previous years' lower-than-planned introductions [4]. Group 5: Investment Outlook - The aviation sector has underperformed compared to the broader market since the beginning of 2025, but there are signs of recovery as the industry enters Q4 [5]. - The combination of improving fundamentals, low oil prices, and effective fare management is expected to enhance market expectations for Q4 [5]. - The three major airlines are positioned near historical average market valuations, with potential for significant margin improvement in Q4 compared to the previous year's substantial losses [5].

Summary of Airline Industry Conference Call Industry Overview - The airline industry is experiencing a recovery phase, with domestic markets showing significant improvement and international markets still in recovery [1][5][10] - Average ticket prices have increased by approximately 5.9% to 6% [1][5] - Daily passenger numbers have grown by 4% due to the extended National Day holiday, with domestic growth at 3.7% and international growth at 12.7% [1][5] Key Insights - **Ticket Price Trends**: - Ticket prices are expected to continue rising in Q4 2025 due to maintenance, repair, and supply chain issues leading to reduced capacity [6][7] - National airlines face pressure to improve profitability, leading to a proactive approach in raising ticket prices [7] - Smaller private airlines may initiate price cuts, potentially reigniting price wars and increasing market uncertainty [7][8] - **Capacity and Demand**: - Domestic airlines have optimized capacity deployment, avoiding supply-demand imbalances [1][5] - Despite high passenger load factors (over 90% during peak summer), there is limited room for significant capacity increases [8] - The international market is growing faster than the domestic market, influenced by government efforts to attract inbound consumption [10] - **Operational Challenges**: - Aircraft parts supply issues are expected to persist until the end of 2025, affecting operational capacity and service quality [14][15] - The execution rate of flight plans is anticipated to decline further in 2026 due to ongoing capacity constraints [15][16] Additional Considerations - **Revenue Management**: - Airlines are adjusting flight schedules based on market demand and strategic goals, utilizing complex revenue management processes to set prices and seat allocations [3] - The relationship between ticket price reductions and passenger volume growth is acknowledged, but the effectiveness of price cuts in increasing unit revenue remains limited [11] - **Market Regulation**: - Regulatory measures, such as minimum price limits, have been implemented to curb destructive competition, although their long-term effectiveness is uncertain [12][13] - **Fleet Management**: - Airlines are not accelerating the retirement of older aircraft but are managing fleet changes in a balanced manner [17] - Operational optimization strategies are being employed to enhance revenue despite limited capacity, focusing on high-demand routes [18] This summary encapsulates the key points discussed in the conference call regarding the airline industry's current state, challenges, and future outlook.

Group 1: Industry Overview - The domestic flight ticket bookings for the Mid-Autumn and National Day holidays have exceeded 4.52 million, with a daily average increase of over 25% compared to the same period last year [1] - International flight ticket bookings have surpassed 1.29 million, with a daily average increase of approximately 14% year-on-year [1] - The search volume for domestic flight tickets has increased by over 30%, with keywords related to moon viewing and autumn appreciation seeing a 117% year-on-year increase [1] Group 2: Supply and Demand Dynamics - The Civil Aviation Administration of China (CAAC) is focusing on optimizing route networks and addressing "involution" competition within the industry, which is expected to lead to a more rational competitive environment [2][5] - During the summer travel season, passenger flow increased by over 3% year-on-year, with a rise in seat occupancy rates [2][4] - The demand for private travel has been strong, while business travel has unexpectedly weakened, leading to a decrease in ticket prices [4] Group 3: Airline Performance - China Eastern Airlines, China Southern Airlines, and Air China saw their stock prices rise by over 4% and 2% respectively, driven by the anticipated increase in travel during the upcoming holidays [3] - China Southern Airlines reported a revenue of 86.29 billion yuan for the first half of 2025, with a year-on-year growth of 1.8% [8] - Air China achieved a revenue of 80.76 billion yuan in the first half of 2025, marking a 1.6% year-on-year increase, and managed to turn a profit in the second quarter [7] Group 4: Future Outlook - The industry is expected to see a gradual recovery in profitability due to lower oil prices and a stable exchange rate, which will enhance airline profits [6] - The CAAC is likely to continue controlling flight schedules, which may limit capacity growth but could lead to improved pricing strategies in the medium term [5][6] - The overall industry is projected to turn profitable in 2025, with airlines expected to reduce losses significantly during the off-peak season [6]

Core Viewpoint - The aviation sector is experiencing a positive trend due to increased demand during the upcoming National Day and Mid-Autumn Festival holidays, with significant growth in ticket bookings and a favorable supply-demand balance expected to enhance profitability for airlines [1][2][3]. Industry Overview - The aviation industry is anticipated to benefit from a reduction in "involution" competition, leading to a more rational market environment and improved operational efficiency [1][2]. - The Civil Aviation Administration of China (CAAC) is actively working to optimize route networks and control flight schedules, which is expected to stabilize the market and improve profitability for airlines [2][4]. Demand Insights - Domestic flight ticket bookings for the upcoming holidays have exceeded 4.52 million, with a daily average increase of over 25% compared to the previous year [1]. - The average price of domestic tickets during the National Day holiday is expected to remain stable compared to last year, with a pattern of higher prices at the beginning and end of the holiday period [2]. Supply Dynamics - The supply of domestic flights is expected to grow slowly, with the CAAC maintaining strict control over flight schedules and capacity [4]. - The overall capacity for the peak season is limited, and airlines are likely to face challenges in increasing operational efficiency due to ongoing supply chain disruptions [4][5]. Financial Performance - China National Aviation achieved a revenue of 80.76 billion yuan in the first half of 2025, with a net loss of 1.81 billion yuan, showing a reduction in losses compared to the previous year [6]. - China Eastern Airlines reported a revenue of 66.82 billion yuan in the first half of 2025, with a net loss of 1.43 billion yuan, also reflecting an improvement from the previous year [7]. - China Southern Airlines recorded a revenue of 86.29 billion yuan in the first half of 2025, with a net loss of 2.03 billion yuan, indicating a continued recovery in operational performance [7].

Core Viewpoint - The overall performance of listed airlines in the first half of 2025 shows that state-owned airlines are still in a loss state, while private airlines demonstrate stronger performance recovery due to better operational flexibility [1][2]. Group 1: State-Owned Airlines Performance - In the first half of 2025, three state-owned airlines achieved revenue growth: China International Airlines reported revenue of 80.757 billion yuan, a 1.56% increase, with a net loss of 1.806 billion yuan, a reduction in loss [2] - China Eastern Airlines reported revenue of 66.822 billion yuan, a 4.09% increase, with a net loss of 1.431 billion yuan, also a reduction in loss [2] - China Southern Airlines reported revenue of 86.291 billion yuan, a 1.77% increase, with a net loss of 1.533 billion yuan [2]. Group 2: Private Airlines Performance - Private airlines achieved profitability in the first half of 2025, with Hainan Airlines reporting revenue of 33.083 billion yuan, a 4.22% increase, and a net profit of 56.945 million yuan [3] - Shanghai Juneyao Airlines reported revenue of 11.07 billion yuan, a 1.02% increase, with a net profit of 505 million yuan, a 3.29% increase [3] - Spring Airlines reported revenue of 10.304 billion yuan, a 4.35% increase, with a net profit of 1.169 billion yuan, a 14.11% decrease [3] - Huaxia Airlines reported revenue of 3.610 billion yuan, a 12.41% increase, with a net profit of 251 million yuan, an increase of 858.95% [3]. Group 3: Industry Trends and Insights - The summer transportation season saw a total of 147 million passengers transported, a 3.6% year-on-year increase, with an average seat occupancy rate of 84.8%, up 2.2 percentage points [4] - The market exhibited a trend of increasing volume but decreasing prices, attributed to oversupply and low-price competition [6] - The release of the "Self-Regulation Convention for Air Passenger Transport" aims to combat low-price competition and stabilize market prices [6]. Group 4: Future Outlook - The upcoming "Golden September and Silver October" period is expected to be a crucial window for revenue improvement [7] - Airlines plan to optimize sales strategies and innovate products to enhance efficiency and profitability in the second half of the year [7].

Industry Rating - The industry investment rating is maintained as "Outperform the Market" [1] Core Insights - The aviation industry has incurred significant losses, totaling 329.5 billion yuan from 2020 to 2023, while the cumulative profit from 2010 to 2019 was only 278.2 billion yuan [2][8] - The root cause of the losses is identified as excess capacity, with a 15% increase in the number of aircraft from 2019 to 2024, while passenger traffic only grew by 11% [3] - Average ticket prices for the three major airlines have decreased by approximately 7% compared to 2019, leading to continued losses in 2024 and the first half of 2025 [11] Summary by Sections 1. Aviation Industry Losses - The aviation industry urgently needs to address its losses, with major airlines continuing to report significant deficits [6] - The average ticket price for the three major airlines in 2024 is lower than in 2019, contributing to declining profit margins [11] 2. Capacity and Demand Imbalance - The growth in the number of aircraft has outpaced the growth in passenger traffic, leading to an ongoing imbalance in supply and demand [15] - Aircraft utilization rates have not fully recovered to pre-2019 levels, although passenger load factors have exceeded those levels in 2025 [20] 3. Opportunities for Improvement - There is potential for the early retirement of older aircraft, which could help clear excess capacity and improve profitability [24][27] - The prices of second-hand aircraft have risen, providing an opportunity for airlines to sell or lease older planes for good returns [28] - The profitability of foreign airlines is higher than that of domestic airlines, suggesting a need for domestic airlines to consider external aircraft adjustments [36] 4. Domestic Aircraft Market - The delivery volume of domestic large aircraft is expected to increase significantly, with domestic aircraft projected to become the main source of growth in aircraft numbers [39]

Core Viewpoint - The report from Guotai Junan suggests that short-term demand fluctuations do not alter the long-term growth logic of the aviation industry, recommending a contrarian investment approach in the sector [1] Group 1: Industry Supply and Demand - The aviation supply has entered a low growth phase, with a projected improvement in supply-demand dynamics over the next two years, supported by declining oil prices and a reduction in competitive pressures [1][2] - In Q2, the domestic aviation supply remained low, with a net increase of only 52 aircraft, while the industry’s Available Seat Kilometers (ASK) grew by 6.7% year-on-year [2] - Domestic demand showed a steady recovery, with passenger traffic increasing by 5.5% in Q2, and the average ticket price remained stable compared to Q1 [2][3] Group 2: Financial Performance - The industry experienced a significant reduction in losses in Q2, with passenger load factors reaching historical highs, and a projected substantial decrease in losses for the three major airlines [2] - The average domestic fuel price decreased by 17% year-on-year, contributing to improved profitability for airlines during the off-peak season [2][3] Group 3: Seasonal Trends and Expectations - During the summer travel season, private travel demand remained strong, while business travel unexpectedly weakened, leading to lower ticket prices [3] - Despite the challenges, the industry is expected to achieve significant profitability during the summer season, with projections indicating a return to profitability by 2025 [3] Group 4: Policy and Market Dynamics - The "anti-involution" measures are anticipated to benefit the industry in three ways: reducing excessive low pricing in the short term, improving revenue management in the medium term, and ensuring slow growth in fleet planning in the long term [4]