Cathay Pacific Haitong: Maintaining “Gain” Rating Conflicts in Aviation and Oil Transportation, Suspend Negotiations, Restart Expectations Raise

The Zhitong Finance App learned that Cathay Pacific Haitong released a research report stating that it will maintain the “gain” rating for aviation oil transportation. 1) Aviation: Long supercycle logic can still be expected. Ticket prices are marketed and supply is growing low. Boosting consumption will help supply and demand continue to improve. Seize opportunities at the bottom. 2) Oil transportation: If oil supply and demand return to high levels in the straits, Iran's lifting of the ban is expected to be extremely prosperous and sustainable. Geopolitical conflicts are repeated without changing the medium- to long-term logic; focus on reverse timing.

Cathay Pacific Haitong's main views are as follows:

Aviation: The summer travel season ushered in the peak of passenger flow. The “15th Five-Year Plan” will deepen anti-domestic pressure and guarantee a low increase in supply.

1) The summer travel market will reach its peak in mid-early August. The reduction in fuel surcharges will help release demand for parent-child travel. Recently, the number of tickets issued in a single day reached a record high. It is estimated that in the first week of August, passenger traffic increased by more than 7% year on year, the domestic passenger occupancy rate was as high as 90%, and the year-on-year decline in domestic fuel ticket prices narrowed to single digits.

2) In August, the factory price of domestic aviation fuel was 7,581 yuan, up 34% year on year, down 6% month on month. Considering that the average price of aviation fuel in Singapore rebounded by more than 10% month-on-month in July, it is speculated that the NDRC's pressure on aviation fuel prices in August will ease the pressure on airline operations. Airline operations are expected to improve markedly in August.

3) The “15th Five-Year Plan” of civil aviation emphasizes “unifying the domestic market” and “achieving effective quality improvement and reasonable volume growth”. The bank believes that it will further deepen the anti-domestic market to ensure that supply remains low. Future demand growth will drive the long-term logical interpretation that supply and demand will continue to improve and the profit center will rise. Pay attention to the timing of aviation's bottom layout.

Oil transportation: The conflict has been suspended and expectations for the resumption of negotiations have increased, and it is difficult for freight rates to continue to rise due to the reduction in cargo volume.

VLCC traffic in the Strait of Hormuz and the Strait of Mander remained low last week. On August 2, US President Trump announced the suspension of a new round of military operations against Iraq. Expectations for restarting the waterway have increased, and further specific implementation is yet to be followed up and observed. Short-term geopolitical conflicts continue to affect oil transportation demand. New pallets in the Middle East and the Gulf of America are limited, and VLCC TCE for the US Gulf and West Africa routes has declined slightly, and it is still close to the one-year lease level.

2) Mid-term: The industry believes that it may be difficult for the strait to fully recover in the second half of the year, but recovery can still be expected in early 2027. If the strait recovers, the oil transportation capacity utilization rate will return to the high level before the conflict, and Changjin's control and inventory replenishment will be further icing on the cake.

3) Long-term: If the US lifts oil sanctions against Iran, the oil transportation compliance market is expected to be extremely prosperous and last for several years. The geopolitical situation has cooled down, and the US and Iran are expected to resume negotiations.

Highlights of the semi-annual report: Cathay Pacific's profit surged in the first half of the year, fully benefiting from the passenger flow spill in the Middle East.

Cathay Pacific's net profit for the first half of 2026 was HK$6.2 billion, up 71% year over year. Excluding fuel hedging benefits of $900 million and $1.4 billion, it still increased by about 21% year on year, exceeding market expectations. Estimating the company's total transmission fuel costs in the first half of the year was better than the 8-90% transmission ratio of mainland airlines.

The bank believes that it mainly stems from fully benefiting from the shutdown of Middle Eastern hubs and the spillover of transit passenger flows. The company has sufficient air rights in Europe and the US, and Hong Kong, China has superior transit hub locations such as India to the US and Australia to Europe/UK. The volume and price of the company's Q2 related routes increased by 12%, driving the company's ASK increase by 12% in the first half of the year, and the passenger occupancy rate rose 2.7 pct to a new high of 87.5%, and passenger revenue surged 9% year on year. Similar favorable international effects are also reflected in the Q2 operations of major domestic airlines. China's Civil Aviation “15th Five-Year Plan” emphasizes “enhancing the function of an international aviation hub”. The policy has the potential to combine visa-free dividends, and the Administration strictly controls local international flight subsidies. It can be expected that the long-term profitability of international routes will increase in the future.

Risk warning: economic fluctuations, geographical oil prices, tariffs, exchange rates, safety incidents, etc.