Cathay Pacific Haitong: The aviation fleet maintains a low growth rate, and the oil transportation boom can be expected to rise

The Zhitong Finance App learned that Cathay Pacific Haitong released a research report stating that it will maintain the aviation oil transportation holdings increase rating. The bank expects the 25Q4 aviation industry to drastically reduce losses and reverse losses throughout the year. Japan's route fluctuations will not change the long-term logic, the “15th Five-Year Plan” fleet will maintain low growth, and demand growth will drive higher and sustainable ticket prices and profits. It is recommended to reverse the supercycle. The slight correction in oil freight rates remains high, and the impact of the Russian-Ukrainian peace talks may be limited. I am optimistic that the future economy will rise above expectations.

Cathay Pacific Haitong's main views are as follows:

Aviation: It is expected that losses will be drastically reduced in Q4 in 2025 and losses will be reversed throughout the year. Japan's route fluctuations will not change the long-term logic

The impact of the November season change was weaker than in previous years. The bank estimates that passenger traffic volume increased 6% year on year in November (domestic +5%/international +18%); passenger occupancy rate increased by 3-4 pct year on year, making it a record high for the same period, and leading the world; domestic fuel ticket prices rose 1-2% year on year, and international ticket prices rose significantly year on year; losses are expected to be drastically reduced in November. In December, the factory price of aviation fuel increased 4% year-on-year for the first time in the year. Fuel surcharges for domestic routes over 800 kilometers were raised from 20 yuan to 40 yuan, which should cover the increase in fuel. Recently, passenger traffic on the Japanese line has been reduced, and airline flights may be reduced, and they may switch to markets such as Southeast Asia and the domestic market. Considering the lackluster daily performance in 2025, the overall impact on the industry is expected to be limited, and the long-term logic will not be changed. The bank expects the 2025Q4 industry to continue to drastically reduce losses, and 2025 will reverse losses throughout the year. China Airlines will launch a “super cycle”, considering the marketization of ticket prices. Steady growth in demand and optimization of passenger source structure will drive the airline's profit center to rise and be sustainable.

Oil transportation: The freight center is still high, and the future boom can be expected to rise

Over the past few months, the effects of increasing crude oil production in the Middle East and South America have been shown, and India has reduced Rosneft's imports of compliant crude oil, driving VLCC TCE to soar. 25Q4 profits will hit a ten-year high. Recently, tenants controlled the pace of shipments and suppressed freight rates through private transactions, while shipowners actively raised prices. The Middle East-China VLCC TCE slightly pulled back to 120,000 US dollars last week, and is still at a high level. The bank expects crude oil profits to reach a ten-year high in 25Q4 and the full year. It indicates that the pace of shipment and the subsequent off-season may affect short-term freight rates, and does not change the central upward trend of the year. There are huge differences in future oil transportation trends. The bank believes that the increase in global crude oil production will continue and will continue to drive the increase in oil transportation demand, while aging will guarantee that the supply of effective capacity in the compliant market will grow limited, and the oil transport boom is expected to continue to exceed expectations, indicating that the impact of the Russian-Ukrainian peace talks may be limited.

Aviation “15th Five-Year Plan” outlook

Internal factors dominate the superposition of external factors, and aviation supply has entered an era of low growth. The center of the compound annual growth rate of the “14th Five-Year Plan” fleet slowed significantly from double digits to less than 3%. Behind this, there is a combination of “internal factors” of the airline's willingness to spend capital and “external factors” in aircraft manufacturing capacity. The bank expects the impact of external factors to continue in the next 2-3 years, while internal factors will guarantee that the future fleet will maintain a low growth rate, help the profit center rise, and ensure that the future boom is sustainable, thus providing room for “aviation supercycle” valuation. Among them, a global recall and maintenance was initiated in September 2023 due to high temperature metal powder quality control issues in some parts of Pratt & Whitney PW1000G series aircraft engines. At the beginning of the impact of 2024, China Airlines generally grounded flights during the off-season and cut low-line flights. During the peak season, fleet turnover fully resumed positive profits, and effectively coped with related impacts. Inclusive maintenance production capacity increased by 30% in 2024 and the maintenance cycle was shortened, but it was still unable to meet related demand in the short term. In 2025, as the relevant engine maintenance cycle expires centrally and returns to the factory for maintenance, the scale of grounding will expand and affect profit during the peak season. Considering Inclusive and continuing to increase maintenance production capacity, the bank expects that the impact of related shutdowns over the next two years may gradually weaken, without changing the rigidity of the supply schedule for major aviation routes.

Strategy: Maintain the increase in aviation oil transportation

1) Aviation: The supercycle may begin. Passenger occupancy rates are at record highs and ticket prices are low. Fares are marketable and supply is low. Increased demand will drive profits upward. 2) Oil transportation: The impact of the Russian-Ukrainian peace talks may be limited, and I am optimistic that the future economy will continue to exceed expectations.

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