Xiaomo: Mainland air passenger traffic falls short of expectations during the Mid-Autumn Festival National Day holiday, railways speed up market share

The Zhitong Finance App learned that J.P. Morgan Chase released a research report saying that the passenger performance of China's aviation industry fell short of expectations during the Mid-Autumn Festival and National Day holidays, and aviation continued to lose share to railways, rather than a broad recovery in aviation demand. The bank maintains a cautious view, believing that demand is entering a low season, fuel surcharges will increase or further suppress demand, and high fuel costs will continue to put pressure on profits.

In terms of individual stocks, the bank rated Air China (00753) H shares as “neutral” with a target price of HK$4.3; for China Eastern Airlines (00670) and China Southern Airlines (01055) H-shares, the target prices were HK$2.6 and HK$2.7, respectively; and rated Cathay Pacific (00293) as “adding” to the target price of HK$16.

The bank pointed out that according to data from the Ministry of Transport, air carried 14 million passengers from October 1 to 6, down 1% year on year; railways carried 128 million passengers, up 12% year on year. The total number of passengers carried across regions during the seven-day holiday period (October 1 to 7) was about 2.1 billion, or about 306 million per day, up only 1% year on year; of these, there were 152 million railway passengers, up 13% year on year, and 17 million air passengers, or 2.4 million per day, which was roughly the same as year on year. The bank believes that this differentiation is negative for aviation, especially on mid-range domestic routes where high-speed rail is competitive in terms of price, punctuality, and convenience in the city center.

The pricing data was mixed: FlightMaster and pre-holiday data showed that domestic tax-inclusive fares rose by about 12% year on year, which is roughly in line with the bank's preview; however, VariFlight showed that gross domestic ticket prices fell about 6% year on year from September 28 to October 4, reflecting the weak actual pricing for the core holiday season. Starting October 10, fuel surcharges for domestic routes were raised to 50 yuan per ticket for short haul routes (800 km or less) and 90 yuan for long haul routes (over 800 km), plus an airport construction fee of about 50 yuan, which may suppress demand for options and weaken passenger capacity recovery.

The highlight is outbound: Umetrip showed that there were more than 1.2 million outbound ticket bookings, an increase of about 4% year over year, and more than 1.1 million inbound tickets, an increase of about 6% year over year. Cirium data shows that the Asian region is leading the recovery. Flights to South Korea rose 20% year on year, while Thailand, Malaysia, Vietnam and Singapore rose 20%, 27%, 15% and 11% respectively; Japan was still the main drag, with capacity falling 54% year over year, still about 53% lower than in 2019.