CITIC Securities: Factors such as stable oil prices and high international flight boom drive focus on aviation sector valuation repair
The Zhitong Finance App learned that CITIC Securities released a research report saying that the sharp increase in oil prices has significantly amplified the profit differentiation of airlines. In the first three weeks/May of April, the full domestic fare increased by 17.0%/12.7% to 900/916 yuan. The double-digit increase in domestic fares opens up flexible space. If a steady decline in fuel prices in the future leads to a reduction in fuel surcharges, bare fares are expected to accept some of the surcharge reduction space. The industry was affected by short-term disturbances in the early summer travel season. Excluding typhoon weather, the traffic growth rate was fixed month-on-month. The second half of July may be an important window for verifying demand resilience and ticket price improvements. Considering the introduction of supply-side aircraft and strong schedule volume restrictions in the next two years, it is expected that aviation fuel cost mitigation and bare ticket price compensation will resonate at some point in time and be transmitted to quarterly profits. It is recommended to focus on aviation sector valuation repair driven by the stabilization of oil prices, the beginning of an inflection point in summer transportation volume and prices, and the continued boom in international flights.
CITIC Securities's main views are as follows:
Oil prices rose sharply, and the industry's overall ticket prices soared during this period, opening up flexible space to explore future cyclical space under the return of aviation fuel prices and flexible ticket price resonance. The pressure of high oil prices on the cost side of airlines may be mainly reflected in 2Q26. According to the performance forecasts of various airlines, 2Q26 China Airlines, Juneyao Airlines, China Southern Airlines, and China Eastern Airlines lost 0.8 to 100 million yuan, 2.3 to 300 million yuan, 49.5 to 5.45 billion yuan, and 3.43 to 4.03 billion yuan, respectively. The impact of high oil prices brought about by geopolitics was immediately resolved. The cycle was accumulated over multiple factors. In the first two weeks of the summer travel season, domestic raw ticket prices fell by double digits year-on-year with the rapid recovery of class cuts. It is expected that supply-side volume is nearing its end. The second half of July may be a critical stage to observe domestic demand during the summer season. The cycle has only arrived late, and there has never been an absence. Domestic passenger traffic of civil aviation began to correct this week. We look forward to the return of aviation fuel prices during the next peak season and the elastic resonance of ticket prices to unleash the flexibility of the aviation boom cycle.
The introduction of the aircraft fleet and the volume of aircraft are jointly constraining supply, and the aviation cycle is only waiting for demand to flourish.
High aircraft rents, PW1100G engine maintenance, and Leap's gradual entry into the maintenance cycle have further limited the effective capacity of airlines. At the same time, strict control and structural adjustment have always been the basic gripper for the Civil Aviation Administration's anti-domestic flight schedule. Since 2023, domestic flights have continued to grow negatively year-on-year during the winter and spring season, and the same increase of -1.8%/-2.8% during the 2025 winter/spring/2026 summer and autumn seasons, leading to high-quality revenue growth. Based on multi-factor estimates of supply and demand, we expect the (demand-supply) compound growth rate difference of 0.5%/0.6%/0.7% in the next 3 years compared to 2015, respectively. The impact of marginal changes in demand is expected to expand as the gap between supply and demand continues to widen.
The inflection point in summer demand side traffic is beginning to appear. Positive signals accumulate and expect ticket price flexibility, and the performance of 3Q26 airlines will diverge or continue.
High oil prices and typhoon disturbances suppressed the initial volume and price performance during the peak summer season. However, if the July 11 and July 12 typhoon disturbances were excluded, the cumulative flight volume remained basically the same year on year, and the impact of early flight cuts was gradually being repaired; in combination with the reduction in fuel surcharges starting July 5, the second half of July may become an important observation window for peak season demand release and price improvement. As far as 3Q26 is concerned, the US and Iran have gradually become familiar with each other's intentions and bottom line after many tests and contacts, but it may take time for aviation fuel prices to return to the 2025 level. The oil price is relatively high, 3Q26 airline performance is divided or continued, and the “two highs+two orders+two low” business model superimposed cost control and shift to more detailed management granularity to jointly amplify the company's leading cost advantage.
International flights maintain a high boom, and focus on the release of demand during the peak season after oil prices stabilize.
Differences in ticket price flexibility combined with cost increases brought about by geographical conflict detours have led to more foreign shipping capacity being invested in Atlantic routes (the China-Europe route market share of domestic airlines increased by 21.5 ppts to 74.1% compared to 2019). The US-Iran conflict or the Euro-Far East route's outer air space narrows further to a narrow region between Georgia and Azerbaijan. It is expected that Chinese airlines will further increase their market share of European routes in the short term. In the context of high passenger occupancy rates, seat occupancy is expected to grow by around double digits. On the demand side, positive factors such as visa-free and race tours continued to catalyze. According to the National Immigration Administration, 1H26 visa-free foreign travelers grew by 30.6% year on year, accounting for 77.8% of inbound foreign travelers. Demand for long-term routes is more resilient, or has brought structural improvements and quality improvements to airline performance. Long-distance and high-yield routes such as China and Europe are expected to remain flexible in the context of an improvement in the supply and demand structure. At the same time, demand for short- and medium-haul outbound travel continues in Southeast Asia, which is expected to solidify the foundation for international passenger flow and jointly promote the improvement of the profit quality of international flights.
Risk factors:
The speed of aircraft introduction exceeded expectations; oil price disturbances exceeded expectations; the impact of geological events exceeded expectations; and the devaluation of the RMB exceeded expectations.