Investment Rating - The report maintains a "Recommend" rating for the aviation industry, expecting the industry index to outperform the benchmark index by over 5% in the next 3-6 months [11]. Core Insights - The report highlights a positive medium-term supply-demand logic despite short-term pressure on oil prices. It notes that high passenger load factors are expected to drive price elasticity [11]. - The report emphasizes the strong performance of Spring Airlines, which leads in both ASK (Available Seat Kilometers) and RPK (Revenue Passenger Kilometers) growth among domestic airlines [1][2][3][4]. Summary by Sections 1. Airline Data Analysis - In February, the ASK growth rates were led by Spring Airlines (22.8%), followed by China Southern Airlines (14.4%) and Air China (13.8%). RPK growth was also led by Spring Airlines (25.6%) [1]. - Cumulative data for January-February shows Spring Airlines leading in ASK (13.2%) and RPK (15.4%) growth [1]. 2. Domestic Routes - For February, Spring Airlines had the highest ASK growth at 23.9% and RPK growth at 25.5%. Cumulatively, Spring Airlines also led with an ASK growth of 18.4% [2]. 3. International Routes - In February, China Southern Airlines led with an ASK growth of 22.7% and RPK growth of 23.0%. Cumulatively, ASK growth was highest for China Southern Airlines at 16.1% [3]. 4. Regional Routes - Spring Airlines showed the highest ASK growth in February at 39.7% and RPK growth at 45.1%. Cumulatively, Spring Airlines also led with an ASK growth of 40.6% [4]. 5. Load Factor - In February, Spring Airlines had the highest load factor at 93.5%, with a year-on-year increase of 2.1 percentage points. Cumulatively, Spring Airlines also led with a load factor of 92.8% [5]. 6. Fleet Size - As of February 2026, the six listed airlines collectively saw a net exit of 4 aircraft, with a total net exit of 9 aircraft compared to December 2025, reflecting a year-on-year growth of 3% [5].

Core Insights - Cathay Pacific Group reported a net profit of HKD 10.83 billion for the year 2025, marking a 9.5% year-on-year increase, and achieving a cumulative profit exceeding HKD 30 billion over three years, positioning it as the leading profitable airline in China [2][3] - The company emphasizes a cautious approach rather than aggressive expansion, focusing on enhancing cost efficiency and organizational resilience to prepare for future uncertainties [3][4] Financial Performance - The net profits for the previous two years were HKD 9.789 billion in 2023 and HKD 9.888 billion in 2024, indicating a consistent upward trend in profitability [2] - Cumulative profits over the three years have successfully offset losses incurred during the pandemic [2] Strategic Focus - The company is prioritizing organizational efficiency and process optimization to enhance operational resilience rather than pursuing blind expansion during favorable market conditions [3][4] - Cathay Pacific plans to invest over HKD 100 billion in fleet renewal, service upgrades, and digital innovation, while continuing to recruit talent in key operational areas [4][5] Market Positioning - The mainland China market has become a crucial growth engine for Cathay Pacific, with the addition of five new routes in 2025, bringing the total to 24 destinations in mainland China [5][6] - The establishment of a "Mainland China Director" position signals the strategic importance of the mainland market in Cathay's future growth plans [6][9] Organizational Changes - The company is extending some headquarters functions to the Greater Bay Area to be closer to market dynamics and is enhancing local talent recruitment and training [9][12] - This shift indicates a deeper integration into the mainland market, moving beyond mere route expansion to embedding operations and decision-making closer to the market [9][12] Customer Experience and Service Differentiation - Cathay Pacific is focusing on enhancing customer experience rather than competing solely on price, investing in inflight dining, entertainment, and cabin experience [12][17] - The company has seen a 35.8% year-on-year increase in "inflight services and passenger spending," reflecting its strategy to concentrate resources on areas that create brand value [17] Cultural Integration - The workforce has grown to over 33,000 employees, with 4,000 based in mainland China, including 800 cabin crew fluent in Mandarin, showcasing the company's commitment to localization [18][20] - Cathay Pacific is investing in talent development, planning to recruit around 3,000 employees globally in 2026, with a focus on understanding local customer needs [18][20] Future Outlook - The company recognizes that sustainable growth must be built on efficient organization, robust cost structures, deep localization, and clear differentiation [24] - Cathay Pacific's current adjustments are aimed at ensuring long-term stability and resilience in a volatile industry, rather than merely seeking rapid growth [24]

Investment Rating - The report maintains an "Overweight" rating for the aviation transportation industry [2]. Core Insights - The industry is expected to experience a supply-demand improvement cycle, with a positive outlook for medium to long-term growth despite short-term concerns regarding oil prices and geopolitical tensions [6]. - The Spring Festival data for 2026 has set a solid foundation for annual demand, with passenger load factors and average ticket prices showing positive year-on-year growth [6][7]. - The three major airlines and Spring Airlines have seen a net reduction of 10 aircraft, indicating a low growth rate in supply, which is expected to support revenue improvement [6][7]. Summary by Sections Industry Overview - In January and February 2026, the aviation sector benefited from the Spring Festival, recording increases in both volume and price, with ASK and RPK up by 5.6% and 7.5% respectively, and passenger load factor increasing by 1.5 percentage points to 85.3% [7]. - The average domestic economy class ticket price increased by 4.2% year-on-year during the same period [7]. Airline Performance - The three major airlines (Air China, China Eastern Airlines, and China Southern Airlines) reported a steady increase in capacity, with ASK up by 5.6% and load factor rising to 84.9% [7]. - International routes showed particularly strong performance, with ASK increasing by 11.6% and load factor up by 2.2 percentage points to 82.6% [7]. Financial Projections - The report highlights several airlines with target prices and "Buy" ratings, including: - Air China (753 HK) with a target price of 9.20 [5] - China Eastern Airlines (670 HK) with a target price of 6.85 [5] - China Southern Airlines (1055 HK) with a target price of 7.60 [5] - The report anticipates a continued recovery in profitability driven by improved demand and reduced supply growth, with specific profit forecasts for 2025-2027 for various airlines [23][24][22]. Cost and Pricing Dynamics - Rising oil prices are expected to impact airline costs, with fuel costs accounting for 32.1% of operating costs for the three major airlines in the first half of 2025 [9]. - Despite the cost pressures, opportunities may arise for Chinese airlines on international routes due to reduced competition from transit hubs in the Middle East [9]. Recommendations - The report recommends a focus on airlines that are well-positioned to benefit from the expected industry recovery, with a particular emphasis on those with strong domestic and international route networks [23][24].

Group 1 - The aviation stocks experienced a collective rebound in early trading, with Eastern Airlines (00670) rising by 3.13% to HKD 4.28 [1] - Cathay Pacific (00293) increased by 2.08%, reaching HKD 12.77 [1] - China Southern Airlines (01055) saw a rise of 1.94%, trading at HKD 4.73 [1] - Air China (00753) rose by 1.85%, with a price of HKD 5.51 [1]

Summary of Key Points from the Expert Call on China's Domestic Commercial Aircraft Industry Overview - The focus of the call was on the **China Transport Sector**, specifically the **domestic commercial aircraft** industry, with an emphasis on the **C919** aircraft program. Core Insights 1. **Production Challenges**: Large-scale deliveries of the C919 are contingent on the commissioning of its **Phase II production line**, which is expected to be completed in **2026**. Geopolitical supply chain risks are identified as the primary constraint on production ramp-up [2][3] 2. **Localization Rate**: The current localization rate of the C919 is approximately **60%**, with significant bottlenecks in **aero-engines**, **avionics**, and **flight control systems**. The airframe structure has exceeded **90% localization** [2][4] 3. **Technological Advantages**: The C919 benefits from late-mover advantages in technology and cost compared to Boeing and Airbus, but it lags in obtaining international airworthiness certification [2][5] Localization Progress and Bottlenecks - **Aero-Engines**: The most significant challenge remains the reliance on US imports for aero-engines, which is the largest shortfall in the independent development of domestic commercial aircraft [4] - **Avionics and Flight Control Systems**: Limited independence in core algorithms and source code is a key barrier, although progress is expected due to strong domestic talent [4] - **High-End Materials**: There is still a high import dependence on basic aviation materials, including titanium alloys and carbon fiber composites [4] Competitive Positioning - The C919 is estimated to have **10% lower fuel consumption** compared to competitors like the Boeing 737 and Airbus A320, while also offering competitive cabin comfort and pricing [5] - The aircraft is expected to target markets in **Southeast Asia**, the **Middle East**, and **Belt and Road countries** through bilateral airworthiness agreements [5] Long-Term Outlook - The domestic commercial aircraft program, supported by the **15th Five-Year Plan**, is anticipated to accelerate the upgrading of China's high-end aviation manufacturing industry, particularly in composite materials and aviation standard parts [5] Risks and Considerations - The downside risks for China's transport sector include: - Persistent economic sluggishness in China and globally - Intensified US-China trade friction - Slower-than-expected growth in peak season tourist traffic - Adverse weather conditions affecting travel - Potential disasters such as earthquakes and epidemics [7]

Core Viewpoint - China Eastern Airlines (600115.SH) reported significant growth in passenger and cargo metrics for February 2026, indicating a strong recovery and operational performance in the aviation sector [1] Group 1: Passenger Metrics - The passenger capacity input (measured in available seat kilometers) increased by 12.79% year-on-year for February 2026 [1] - The passenger turnover (measured in revenue passenger kilometers) rose by 14.68% year-on-year [1] - The passenger load factor reached 86.54%, an increase of 1.42 percentage points year-on-year [1] Group 2: Cargo Metrics - The cargo and mail turnover (measured in cargo mail ton kilometers) saw a significant increase of 33.88% year-on-year for February 2026 [1]

Group 1: Medical Device Industry - The world's first invasive brain-machine interface (BMI) medical device has been approved for market launch in China, marking a significant milestone in clinical application [2][3] - The device, developed by Borui Kang, is designed to assist patients with quadriplegia due to cervical spinal cord injuries, enabling hand function compensation through a pneumatic glove system [2] - Clinical trials have shown that all 32 participants achieved significant improvements in hand grasping ability, with a 100% success rate on primary clinical endpoints [3] Group 2: Policy and Market Environment - The Chinese government is actively promoting the brain-machine interface industry, with plans to establish a product development cluster by 2027 and a reliable industrial system by 2030 [4] - Since March 2025, various provinces have begun to set medical insurance pricing for brain-machine interfaces, enhancing hospital procurement confidence and facilitating further application of this technology in healthcare [4] Group 3: Economic Outlook - The Chinese economy is showing signs of recovery, with significant improvements in production, consumption, and investment, driven by policy support and demand [7][9] - Industrial output increased by 6.3% year-on-year, while retail sales rose by 2.8%, indicating a rebound in consumer spending [9] - Fixed asset investment saw a V-shaped recovery, with a 1.8% year-on-year increase, although real estate investment remains in negative territory [9]

Core Insights - China International Airlines Co., Ltd. reported an increase in passenger turnover volume by 19.1% year-on-year, with a capacity input increase of 13.8% in February 2026 [1] Passenger Operations - Passenger capacity input (measured in available seat kilometers) increased by 13.8% year-on-year, while passenger turnover volume (measured in revenue passenger kilometers) rose by 19.1% [1] - Domestic passenger capacity input increased by 13.3%, with a turnover volume increase of 16.9% [1] - International passenger capacity input rose by 14.0%, with a turnover volume increase of 23.7% [1] - Regional passenger capacity input saw a significant increase of 25.4%, with a turnover volume increase of 37.1% [1] - The average passenger load factor reached 85.9%, up by 3.8 percentage points year-on-year [1] - Domestic routes saw a load factor increase of 2.7 percentage points, international routes increased by 6.5 percentage points, and regional routes increased by 6.8 percentage points [1] Cargo Operations - Cargo capacity input (measured in available cargo ton kilometers) increased by 11.5% year-on-year, while cargo turnover volume (measured in revenue cargo ton kilometers) rose by 21.4% [1] - The cargo load factor was reported at 32.4%, an increase of 2.6 percentage points year-on-year [1] Fleet Information - In February 2026, the group introduced one B737 series aircraft and retired one A320 series aircraft [1] - As of the end of February 2026, the group operated a total of 960 aircraft, including 423 owned, 247 under finance leases, and 290 under operating leases [1]

Core Viewpoint - China International Airlines Co., Ltd. reported a significant increase in passenger turnover and capacity for February 2026, indicating strong growth in both domestic and international travel demand [1] Group 1: Passenger Traffic and Capacity - The total passenger turnover (measured in revenue passenger kilometers) increased by 19.1% year-on-year [1] - Passenger capacity (measured in available seat kilometers) rose by 13.8% year-on-year [1] - Domestic passenger capacity increased by 13.3%, with a turnover rise of 16.9% [1] - International passenger capacity grew by 14.0%, with a turnover increase of 23.7% [1] - Regional passenger capacity surged by 25.4%, with a turnover increase of 37.1% [1] - The average passenger load factor reached 85.9%, up by 3.8 percentage points year-on-year [1] - Domestic routes saw a load factor increase of 2.7 percentage points, while international routes increased by 6.5 percentage points, and regional routes by 6.8 percentage points [1] Group 2: Cargo Operations - Cargo capacity (measured in available cargo ton kilometers) increased by 11.5% year-on-year [1] - Cargo and mail turnover (measured in revenue cargo ton kilometers) rose by 21.4% year-on-year [1] - The cargo load factor was reported at 32.4%, an increase of 2.6 percentage points year-on-year [1] Group 3: Fleet Information - In February 2026, the group introduced one B737 series aircraft and retired one A320 series aircraft [1] - As of the end of February 2026, the group operated a total of 960 aircraft, comprising 423 owned, 247 under finance leases, and 290 under operating leases [1]

Group 1 - The core announcement is that Air China (00753.HK) will hold a board meeting on March 26, 2026, to review and approve the annual performance for the fiscal year ending December 31, 2025, as well as to consider the proposal for the final dividend, if any [1]