(Report Producer/Author: Tianfeng Securities, Chen Jinhai)
. The epidemic determines the pace of recovery 1.1. The performance of airline stocks is negatively related to the epidemic
Judging from the experience of the past two years, the performance of airline stocks largely depends on Based on the epidemic situation and the country’s epidemic prevention policy. Overall, the stock price of airline stocks is negatively correlated with the epidemic. We believe that this strong correlation will most likely continue to be maintained. From the outbreak of the epidemic to the first three quarters of 2021, the stock prices of airline stocks were negatively correlated with the domestic epidemic, that is, the easing of the epidemic drove the stock prices to rise. Since the outbreak of the epidemic, due to domestic and foreign epidemic prevention policies, residents' travel has been suppressed, the operation of the civil aviation industry has been in trouble, and the stock prices of listed airlines have suffered setbacks. During the period when the epidemic was easing, airline stocks experienced periodic gains. From the fourth quarter of 2021 to the beginning of 2022, the correlation between the stock price of aviation stocks and the domestic epidemic situation has weakened, or even been positively correlated, and the aviation and airport sector has experienced a rising trend. Behind this is investors' expectation that the epidemic will subside and the aviation industry's profits will recover.
2021Q4-22 At the beginning of 2021, the fatality rate of the new coronavirus dropped significantly, and the impact of the epidemic on aviation weakened. At the end of 2021, the Omicron pandemic led to a sharp increase in the number of new confirmed cases worldwide, but the fatality rate of Omicron dropped significantly. Against this background, expectations for the epidemic to subside are high, which is an important factor in boosting aviation stock prices from 21Q4 to January 2022 and weakening the correlation between aviation stocks and the epidemic situation. Starting in February 2022, airline stocks quickly resumed their negative correlation with the domestic epidemic. As the domestic epidemic situation continued to reoccur after the Spring Festival, and the negative emotional impact of the Russia-Ukraine war on the capital market was superimposed, the aviation and airport sector made a significant correction from the end of February to the beginning of March, and the trend of aviation stocks resumed its negative correlation with the domestic epidemic situation.
Since the Spring Festival, the stock prices of post-epidemic recovery theme sectors have fallen sharply. We believe this is a temporary adjustment after the stock price surged, and it is also a normal response to the repeated epidemic situations. (1) From the fourth quarter of 2021 to January 2022, the aviation and airport sector significantly outperformed the CSI 300, with obvious excess returns. (2) The domestic epidemic after the holiday suppressed the prosperity and expectations. Since the beginning of March, the number of confirmed cases of the epidemic in China has increased sharply. Since March 12, the number of confirmed cases in a single day in Turkey has exceeded 1,000 consecutively. The volume of civil aviation flights in March 2022 dropped significantly year-on-year. According to Flight Manager data, the number of flights in the 12th week of 2022 (March 21-27) decreased by 76.2% year-on-year. (3) Affected by macroeconomic and international political events, risk aversion in the capital market increased rapidly, and the market dropped rapidly.
1.2. Experience in Europe and the United States: The pace of recovery of the aviation industry depends on epidemic prevention policies
European and American countries have not strictly restricted travel during this round of the epidemic, and the aviation industry has been less affected. In the United States, as of early April 2022, the passenger volume of domestic routes of major U.S. airlines has reached 94% of the same period in 2019; in November 2021, the United States relaxed cross-border flight controls, and the number of passengers on international routes increased significantly. By early April 2022, The passenger volume of major U.S. airlines’ international routes has returned to 86% of 2019; the passenger load factor of domestic routes in early April even exceeded 3 percentage points over the same period in 2019.
In Europe, due to the relaxation of international aircraft controls from the second half of 2021, European flight volume will gradually move closer to the level of 2019 from the third quarter of 2021, and by the end of March 2022, flight volume (including domestic and international) will reach the level of the same period in 2019 77%, which has far exceeded the level of the same period in 2021.
Since 2020, my country's civil aviation passenger volume and passenger load factor have fluctuated greatly, constantly changing with the epidemic situation. The stable stage of the epidemic has shown strong demand resilience. Since the outbreak of the epidemic, our country has implemented a strict zero-clearance policy. During the period when the epidemic is concentrated, both passenger volume and passenger load factor have declined significantly compared with 2019. For example, the spread of the Omicron mutated virus in the fourth quarter of 2021 has caused a sharp drop in passenger volume. The passenger volume in December 2021 has declined significantly compared with the same period in 2019. A decrease of 49%, and the passenger load factor was 15 percentage points lower. In the relatively stable stages of the epidemic, such as September-November 2020 and March-May 2021, China's civil aviation passenger volume and passenger load factor were basically close to the levels of 2019, and the rebound was rapid.
It can be seen from this that residents’ travel demand has always existed. Once travel restrictions are relaxed, aviation demand may rebound quickly. The epidemic situation and epidemic prevention policies are the core factors that determine the current recovery pace of China’s air transport industry. The recovery of the civil aviation industry will be greatly disrupted by the epidemic in the short term, but will depend on the epidemic prevention and control situation in the long term. The State Council Joint Prevention and Control Mechanism meeting held on April 6, 2022 still emphasized the need to continue to adhere to the general policy of " dynamically clearing " unswervingly. In the short term, the epidemic will still cause major disruption to the civil aviation industry. In the long term, although the toxicity of the new coronavirus epidemic is decreasing day by day, Omicron is highly contagious, and the global and domestic epidemic situation remains unclear. Recently, the country has proposed "scientific precision and dynamic clearing", requiring more targeted prevention and control. We believe this will promote the refinement of domestic epidemic prevention policies. Once travel restrictions are relaxed in the future, sectors that have been severely suppressed by the epidemic, such as aviation and airports, will benefit significantly.
1.3. It is expected that international routes will begin to be liberalized in 2023
We believe that the conditions for the liberalization of international routes are not yet available in 2022, and it is expected that international routes will be liberalized in 2023. In order to prevent the large-scale import of overseas epidemics, the Civil Aviation Administration of China began to implement the "Five Ones" international flight policy on March 29, 2020, that is, "one airline, one country, one route, one flight per week." This policy is still in effect. The current liberalization of international flights is restricted by the following four factors:
(1) The current domestic epidemic situation is relatively severe. In the short term, my country will unswervingly adhere to the general strategy of "preventing imported goods from abroad and preventing rebound domestically" and the general policy of "dynamic clearing", and the probability of liberalizing international routes in 2022 is low.
(2) The recovery of the domestic civil aviation market is not healthy and stable enough. The passenger volume of the domestic civil aviation market in 2021 will be 75% of the 2019 level, and the passenger volume fluctuates greatly between months due to the epidemic, and the recovery of domestic civil aviation is not stable. The recent situation of epidemic prevention and control in Shanghai is severe and complex. The Civil Aviation Administration of China has arranged for international flights entering Shanghai from March 21 to May 1 to be diverted to other domestic cities. This shows that the disturbance of international routes to the domestic epidemic is still huge. For the further opening of international routes Still need to be cautious.
(3) The current international political and economic environment is not the best time to liberalize international routes. In recent years, trade frictions between China and the United States and China and Australia have arisen one after another, and economic globalization is facing challenges. The Russian-Ukrainian war broke out at the end of February, and the political game between many countries was fierce. There is no final conclusion yet. The international political environment has deteriorated, and many international routes between China and Europe have been interrupted. At present, there is not a good external environment for the liberalization of international routes.
(4) There are still many countries in the world that restrict cross-border travel, and there is no consistent international opinion on whether to liberalize the international civil aviation market. The current anti-epidemic policies implemented by European and American countries have few restrictions on travel, and they basically adopt a strategy of coexisting with the new coronavirus. However, Asian countries, especially East Asian countries including China, Japan and South Korea, still implement strict epidemic prevention policies including entry permits, post-entry quarantine, and limiting the number of daily arrivals.
Based on the above analysis, we believe that the conditions for the liberalization of international routes are not yet met in 2022, and international routes are expected to begin to be liberalized in 2023. This is generally in line with the plan of the Civil Aviation Administration of China. The "14th Five-Year Plan" for civil aviation points out that 2023-2025 is the growth and release period for China's civil aviation, with the focus on expanding the domestic market and restoring the international market. We predict that in the future, the pace of liberalization of international routes may be gradual, from point to point, rather than comprehensive opening up overnight. It is possible to implement "one country, one policy" and tentative opening up in different regions and steps.
. Demand: High growth in potential demand for air passenger transport2.1. The aviation industry vibrates at the same frequency as GDP, resident income and other macroeconomic indicators
As a typical cyclical industry, the prosperity of the aviation industry is closely related to the macroeconomic situation. Air passenger traffic grows with nominal GDP. Aviation demand is divided into business travel and private travel. The former is related to GDP growth, and the latter is related to residents’ income growth. GDP growth is highly correlated with residents’ income growth. Therefore, the growth rate of air passenger traffic fluctuates with the growth rate of GDP.Judging from the 20-year data before the outbreak, the growth rate of China’s civil aviation passenger traffic shows a strong positive correlation with the growth rate of nominal GDP. In normal years, the ratio of civil aviation passenger volume growth to nominal GDP growth is mostly between 0.8-1.6, with the average ratio being 1.06. In 2021, nominal GDP will grow by 8.1%, and is expected to continue to grow rapidly in the future and drive potential aviation demand faster. increase.
The demand for air travel increases with the increase in per capita income of residents. From a global perspective, data from 1971 to 2019 show that the number of flights per capita is highly consistent with the growth rate of net per capita income. From the perspective of my country, the number of flights per capita has also increased rapidly with the growth of per capita disposable income. Although the number of flights per capita in my country has declined since 2020 due to the negative impact of the COVID-19 epidemic, the per capita disposable income of Chinese residents has still maintained rapid growth. It is foreseeable that the potential demand for my country's aviation will be released after the epidemic subsides.
Consumption upgrades, and the proportion of air passenger traffic increases. As residents' income grows, part of residents' travel needs shift from roads and railways to aviation, so the proportion of aviation in transportation passenger volume continues to increase. The transportation industry economic statistics special survey in 2013 adjusted the statistical caliber and estimation scheme of highway and waterway transport volume. After that, the proportion of air passenger volume increased rapidly.
2.2. The demand for civil aviation may rebound rapidly in the short term, and the long-term growth rate of RPK will be 5.3%
. The number of flights per capita in my country lags far behind other major countries in the world, and the growth potential of passenger traffic is huge. In 2019, my country's per capita number of flights was 0.47, far behind developed countries such as Australia, the United States, Canada, the United Kingdom, South Korea, and Japan, and also inferior to non-developed countries such as Turkey, Russia, and Mexico. In November 2018, the Civil Aviation Administration of China promulgated the "Action Outline for Building a Powerful Civil Aviation Nation in the New Era", proposing a goal of more than one flight per capita in 2035. According to this goal, assuming that the population remains at 1.4 billion in 2035, the average annual compound growth rate of civil aviation passenger volume from 2019 to 2035 will be 4.81%. We predict that the number of flights per capita will be higher than 1 in 2035, corresponding to the average growth rate of air passenger traffic from 2019 to 2035, which will be higher than 5%, and air passenger demand will still achieve relatively rapid growth.
Civil aviation passenger volume will grow rapidly during the "14th Five-Year Plan" period. According to the "14th Five-Year Plan for Civil Aviation Development" issued by the Civil Aviation Administration of China in December 2021, 2021-2022 is the recovery and accumulation period of China's civil aviation, 2023-2025 is the growth and release period of China's civil aviation, and 2025 The annual civil aviation passenger volume should reach 930 million passengers, and the average annual growth rate target of civil aviation passenger volume from 2021 to 2025 is 17.2%. China's civil aviation passenger volume was 660 million in 2019. According to the "14th Five-Year Plan" goal, to reach 930 million passenger volume in 2025, the average annual compound growth rate from 2019 to 2025 needs to reach 5.9%. We believe that the average growth rate of air passenger traffic of 5.9% from 2019 to 2025 is relatively conservative, and the actual average growth rate is expected to be around 7%. On the one hand, the average growth rate of China’s civil aviation passenger traffic in the first four years of the “13th Five-Year Plan” (2016-2019) was 10.9%, which was much higher than the Civil Aviation Administration’s growth target of 5.9% during the “14th Five-Year Plan” period. On the other hand, assuming that my country’s nominal GDP average annual growth rate is 7% during the “14th Five-Year Plan” period (corresponding to a real GDP growth rate of about 5%), based on conservative estimates based on historical data, the growth rate of civil aviation passenger volume is also about 7%.
In terms of demand structure, the growth rate of passenger traffic on overseas routes (including Hong Kong, Macao and Taiwan) is significantly faster than that on domestic routes, and the proportion of passenger traffic on overseas routes will continue to increase. In the 10 years before the epidemic, the growth rate of passenger traffic on overseas routes was basically higher than that on domestic routes, and most of the growth rates remained at double digits. In 2010 and 2015, the growth rate even exceeded 25%. The passenger volume of domestic routes has basically maintained a growth rate of about 10%, and the growth rate in 2018 and 2019 before the epidemic showed continuous decline. As a result, the proportion of overseas route passenger traffic in China's civil aviation passenger traffic has continued to rise as a whole. From 2010 to 2019, this proportion increased from 9.73% to 12.93%. With the increase in residents' income levels and the improvement of my country's opening-up level, it is expected that this trend will continue in the future.
Based on the above analysis, benefiting from the further improvement of my country's economic development and residents' income levels, as well as the strong support for aviation development at the national policy level, in the long term, the potential demand for air passenger transport will continue to grow rapidly (average annual 5.3 from 2019 to 2035) (growth rate around %); in the short term, the COVID-19 epidemic will only delay but not eliminate residents’ travel demand. After the epidemic, air passenger transport may rebound rapidly. (Source of the report: Future Think Tank)
. Supply: low growth during the epidemic, limited supply after the epidemic3.1. The growth rate of aircraft began to slow down in 2019, and low growth during the epidemic
The number of aircraft is the biggest impact on air passenger supply in the short and medium term. main factors. Available seat kilometers (ASK) is the core indicator for measuring air passenger supply. It refers to the sum of the number of seats available for sale and the flight segment distance provided by the entire industry or a certain airline within a certain period. It is composed of four Determined by factors: number of aircraft, number of aircraft seats, flight time (aircraft utilization), flight speed. The number of aircraft seats, flight time (aircraft utilization), and flight speed are all long-term variables or factors that are difficult to change. The number of aircraft has the greatest impact on short- and medium-term changes in ASK, because airlines can quickly expand supply through the introduction of aircraft. Before the epidemic, the number of aircraft in China's civil aviation industry grew rapidly. Since the 21st century, the number of aircraft in China's civil aviation industry has increased from 566 in 2001 to 3,639 in 2018, with an average annual compound growth rate of 11.57%. The growth rate from 2003 to 2018 has always remained above double digits. In 2019, due to the B737MAX aircraft The grounding has led to a significant decline in the growth rate of aircraft numbers.
The epidemic has caused a sharp decline in global new aircraft deliveries. Boeing and Airbus are the major manufacturers of civil aviation transport aircraft in the world, accounting for nearly 70% of the existing commercial aircraft market. Under the epidemic, airlines' willingness to receive new aircraft has plummeted, and the production capacity of Boeing and Airbus has also declined. The combination of the two has led to a sharp decline in the delivery of new aircraft by Boeing and Airbus. Compared with 2018 before the epidemic (Boeing's B737MAX aircraft stopped delivering in 2019, and the deliveries in this year are not comparable), the combined new aircraft deliveries of Boeing and Airbus in 2020 and 2021 dropped by 55% and 41% respectively.
The growth rate of China’s civil aviation industry fleet continues to decline. Before the epidemic, the fleet growth of China's major listed airlines had already begun to slow down. In 2019, the grounding of Max aircraft and HNA Group's debt crisis proactively reduced the fleet size, resulting in a rapid decline in the fleet growth rate of the entire industry, and the total number of major listed airline fleets even experienced negative growth. At the beginning of 2020, the COVID-19 epidemic broke out, Max aircraft were still grounded, and the growth rate of Chinese aircraft numbers further declined.
3.2. Huge losses in the industry, limited aircraft growth after the epidemic
It is expected that after the epidemic subsides, the growth rate of the number of Chinese airlines’ aircraft will be limited, mainly affected by three factors: First, the huge losses in the industry and the reduction of high debt ratios Airlines' willingness to introduce aircraft. Before the epidemic, the entire industry remained profitable from 2009 to 2019, with a huge loss of 79.4 billion yuan in 2020 and a loss of 67.1 billion yuan in 2021. Historically, the industry-wide aircraft growth rate has a strong positive correlation with profit growth, and industry losses will lead to a slowdown in aircraft introduction. It is expected that after the epidemic subsides, industry-wide profits will rebound significantly, and aircraft growth may be slightly higher than during the epidemic. During the epidemic, the debt ratios of major listed airlines increased significantly, and their cash flow creation capabilities declined. Although airlines relied on fixed stock increases and bond issuance to obtain greater liquidity support during the epidemic, the debt ratios of major listed airlines increased significantly, and the ability of the main aviation business to create cash flow declined. The asset cash recovery rates of the three major airlines were higher than those in 2019 It has dropped significantly by about 10 percentage points in 2018, industry risks have increased, and airlines have reduced their willingness to introduce aircraft.
Second, the state controls the introduction of new aircraft. The “14th Five-Year Plan” for civil aviation proposes to “scientifically regulate the total number of time slots and the speed of fleet introduction to ensure the dynamic balance of overall supply and demand.” The introduction of China's air transport aircraft must be approved by the National Development and Reform Commission. With the current overcapacity in the civil aviation industry and the recent aviation safety incidents, it is expected that the country will strictly control the number of new aircraft introduced. Third, the increase in civil aviation passenger licenses will be restricted during the “Thirteenth Five-Year Plan” period.Based on considerations of safety and orderly development of the industry, the Civil Aviation Administration of China has tightened the approval of civil aviation passenger licenses in recent years. Since 2013, the number of newly established air passenger transport companies has gradually decreased. During the "Thirteenth Five-Year Plan" period, only two air passenger licenses were issued, namely Tianjiao Airlines established in 2018 and China Eastern Airlines' subsidiary 123 Airlines established in 2020 (this airline specializes in domestic aircraft passenger transport business) Established, with certain special characteristics), the number of new passenger transport licenses has dropped significantly compared with the "Twelfth Five-Year Plan". The Civil Aviation Authority has not approved any air passenger licenses in 2021 either.
There will be few new passenger airlines in the “13th Five-Year Plan”, and China’s fleet growth is likely to slow down during the “14th Five-Year Plan”. Airlines usually plan capacity deployment three to five years in advance, and fleet introduction is lagging behind. A large number of passenger airlines were established during the "Twelfth Five-Year Plan" period. The number of aircraft introduced during the "Thirteenth Five-Year Plan" period accounted for 13.6% of the entire industry, contributing 1.25% to the average annual growth rate of the industry's fleet ("Thirteenth Five-Year Plan" The industry-wide average annual fleet growth rate is 8%), which is an important reason for the high growth rate of China’s fleet during the “13th Five-Year Plan” period. The tightening of passenger airline license approvals during the “13th Five-Year Plan” is expected to slow down the growth of China’s fleet during the “14th Five-Year Plan” period.
3.3. The center of air transport capacity growth rate in 2020-2023 is 5%
Based on the annual reports of listed companies, industry databases and the business strategies of various airlines, we conducted a simulation analysis of the net fleet increase of listed airlines in the next three years. The introduction and withdrawal plans of the four airlines Air China, China Eastern Airlines, China Southern Airlines, Spring and Autumn Airlines, and Juneyao come from the company's annual report, and the introduction data of China Airlines comes from the industry database. Hainan Airlines , based on its recently released bidding information for 103 aircraft, it is assumed that 34/34/35 aircraft will be introduced from 2022 to 2024 respectively.
The airline's aircraft introduction plan will be interfered by the following three factors: Interference factor 1: The return time of the B737MAX aircraft is uncertain. We expect that the Civil Aviation Administration of China will approve the return of B737MAX aircraft in 2022. Most of the delivery plans for MAX aircraft in 2021-2023 will be concentrated in 2022-2023, with a small number of deliveries in 2024 or even later. Interference factor two: The delivery uncertainty of domestically produced aircraft is very high. According to COMAC’s plan, the delivery target of domestically produced ARJ aircraft in 2021 is 55 aircraft, but the actual delivery volume is 21 aircraft, with a completion rate of 38%. The C919 aircraft originally planned to be delivered within the year has also failed to be completed. Based on this, we believe that the actual delivery volume of domestically produced aircraft in 2021-2023 will not exceed 50% of the planned delivery volume. Disruption factor three: Airlines may negotiate with Boeing and Airbus to postpone aircraft delivery. The specific amount depends on the recovery of aviation demand and the airline’s aircraft growth demand.
High-speed scenario: significantly lower than the average fleet growth rate of 9.6% in the first four years of the “Thirteenth Five-Year Plan” (2016-2019). We believe this will be the hub of fleet growth from 2019 to 2023. It can be seen that compared with before the epidemic, the number of aircraft of listed airlines will grow at a low rate from 2019 to 2023. It is a high probability event.
In addition to the number of fleets, other factors that affect transportation capacity include: The number of parked aircraft. Currently, 28% of the airline's grounded aircraft are B737MAX aircraft. If the 156 B737NG series aircraft grounded by China Eastern Airlines are excluded, B737MAX aircraft account for 51% of the grounded aircraft. Hainan Airlines is special in that most of its aircraft groundings are non-technical groundings caused by debt problems. Since airlines' statistics on aircraft utilization will include parked aircraft, the impact of parked aircraft on air transport capacity is ultimately reflected in aircraft utilization.
Number of seats on the aircraft. In recent years, under the trend of upsizing narrow-body aircraft, the newly delivered A320/321NEO and B737MAX have significantly increased the number of seats compared to the original A320CEO, B737NG and other models. At present, both A320CEO and B737NG have been discontinued, and the aircraft to be delivered in the future will be new models such as A320/321NEO and B737MAX. Compared with the old models, the average increase in the number of seats in new narrow-body aircraft delivered by Airbus was 6.3%, the average increase in the number of seats in new narrow-body aircraft delivered by Boeing was 12.5%, and the average number of seats in aircraft of Boeing and Airbus aircraft increased by 9.3%.
Except for HNA, we believe that aircraft orders from leasing companies from 2021 to 2023 will not disrupt the fleet growth of listed airlines for the time being. The industry-wide passenger load factor in 2020-2021 is far lower than that in 2019. The industry is currently in a state of severe excess capacity. Except for airline companies' own orders, listed airlines have little incentive to introduce aircraft ordered by leasing companies in the form of operating leases. Even if airlines introduce aircraft through financial leasing and sale-leaseback, the source of these aircraft is the airline's own orders. We believe that the industry's existing capacity and future airline order aircraft capacity can meet market demand from 2021 to 2023. Combining the previously estimated growth rate of 3.9% in the number of aircraft from 2019 to 2023, aircraft utilization rate, and increase in the number of aircraft seats, we estimate that the average annual compound growth rate of capacity (ASK) from 2019 to 2023 will be 5.0%.
. Improved passenger load factor, high profit elasticity4.1. Mismatch of supply and demand, the passenger load factor of the three major airlines may exceed 85% in 2023
Mismatch of supply and demand leads to changes in passenger load factor. The most prominent period of supply and demand mismatch in history was 2009-2011. Taking the three major airlines as an example, the average growth rates of RPK and ASK from 2008 to 2011 were 15.9% and 12.4% respectively. The mismatch between supply and demand that lasted for nearly three years caused the passenger load factor to rise rapidly, from 73% in 2008 to 2011. 81% of the year.
4.2. Fares are highly elastic, and the performance elasticity of the three major airlines is the largest
. The increase in passenger load factor drives up the fares, which is directly reflected in the increase in seat-kilometer/passenger-kilometer revenue. From 2008 to 2011, the passenger load factor increased significantly, and the revenue from seat kilometers of the three major airlines also improved significantly. From 2014 to 2019, the passenger load factor increased slowly, but the seat-kilometer/passenger-kilometer revenue dropped slightly. The main reason was that the three major airlines improved their cost control capabilities and proactively chose to lower fares to cope with market competition under the premise that the unit cost of and dropped. .
Airlines' sales gross profit margin and net profit margin fluctuate widely, which means that profitability is highly elastic. From 2015 to 2019, the high point of the net sales profit margin of the three major airlines was around 7%, and the low point was around 2%; the high point of the gross profit margin was around 30%, and the low point was around 0%. Once aviation demand recovers, rising ticket prices are expected to drive significant changes in gross profit margin and net profit, with earnings showing obvious elasticity.
4.3. Air China’s net profit after the epidemic is expected to reach 10 billion yuan
Assuming that the epidemic subsides and domestic and international travel fully returns to the level of openness before the epidemic, we take Air China as an example and evaluate its performance under three scenarios: pessimistic, neutral, and optimistic. Make calculations. Considering that in some months during the epidemic, the industry ASK has exceeded the level of the same period in 2019, we believe that the ASK of Air China's domestic routes after the epidemic will be 100%-120% of the 2019 level. In the 10 years before the epidemic, the ASK of Air China's international and regional routes maintained an average growth rate of more than double digits. We believe that the ASK of Air China's overseas routes after the epidemic will be 90%-110% of the 2019 level.
Based on the operating data in 2019, it is assumed that under pessimistic circumstances, Air China’s domestic, international, and regional available seat kilometers (ASK) after the epidemic can recover to 100%, 90%, and 90% respectively of 2019 (i.e., overseas routes 10%); under neutral conditions, ASK in the three regions can recover to 2019 levels respectively. 110%, 100%, 100% (that is, overseas routes have fully recovered and domestic routes have increased by 10%); under optimistic circumstances, ASK in the three regions can recover to 120%, 110%, and 110% respectively in 2019 (that is, overseas routes have grown by 10%). 10%, domestic routes increased by 20%).
After calculation, under a pessimistic scenario, Air China’s revenue after the epidemic can reach 130.7 billion yuan, with a net profit of 9 billion yuan; under a neutral scenario, Air China’s revenue can reach 144.3 billion yuan, with a net profit of 9.9 billion yuan; under an optimistic scenario, Air China’s revenue can reach 9.9 billion yuan It can reach 157.8 billion yuan, with a net profit of 10.8 billion yuan. (Report source: Future Think Tank)
5. Taking history as a guide, we can know that the performance of aviation stocks in history is highly consistent with the Shanghai and Shenzhen 300 Index. There are three stages in which aviation stocks have experienced larger increases: (1) 2005.7-2007.12: Main income Benefiting from the appreciation of the RMB; (2) 2008.10-2010.10: The improvement of supply and demand relations is the main factor; (3) 2014.7-2015.6: Bull market, international oil prices fell sharply.
The current situation of the epidemic is very similar to that of 2008.The global financial crisis broke out in the second half of 2008, and the macroeconomy declined rapidly. Global air travel demand was severely damaged, and airline capacity growth was slow. Starting in 2009, air travel demand recovered rapidly. Taking the three major airlines as an example, from 2009Q1 to 2011Q2, RPK maintained a year-on-year growth rate of more than 10% every quarter, reaching a peak of 32.7% (2011Q3); at the same time, due to the lag in capacity growth, ASK growth rate has always been lower than RPK growth rate, and the growth rate difference continues to expand, with the maximum growth rate difference reaching 10.3% (2010Q3).
observed that the rising market of airline stocks from 2008 to 2010 has the following three characteristics: (1) The rising market of airline stocks started earlier than the point when the supply and demand relationship improved significantly. The relationship between supply and demand really began to improve in 2009, but the start of the aviation stock price started in October 2008. Anticipation of aviation recovery took the lead in driving the stock price to rebound. (2) The market trend of airline stocks is not an intermittent rise, but a continuous rise with a large time span. It started in the fourth quarter of 2008 and reached its highest point in the fourth quarter of 2020, which lasted for two years and spanned three years from 2008 to 2010. During this period, aviation demand growth has been higher than capacity growth, and the growth rate gap has widened over time. (3) The end of the aviation stock market is accompanied by the decrease in the growth rate difference between aviation demand and supply. Starting from the fourth quarter of 2010, the growth rate of RPK slowed down, and the difference with the growth rate of ASK narrowed.
Since 2020, the epidemic has led to a continued decline in aviation demand. From 21Q4 to early 2022, as the toxicity of the COVID-19 epidemic weakened and specific drugs became available, global aviation demand recovered. However, with the recurrence of the global epidemic situation and the slow recovery of international routes, the supply of aircraft has increased since 2021, and the supply and demand relationship has not really improved. There are two levels of improvement in supply and demand relations. The improvement of short-term supply and demand relations mainly depends on the stabilization of the epidemic situation. The real improvement of long-term supply and demand relations will benefit from the relaxation of controls on international routes by various countries. The stabilization of the epidemic will lead to a substantial increase in domestic demand and an increase in domestic passenger load factors. For aviation demand to return to pre-epidemic levels, passenger flow on international routes will increase. Regardless of the short-term or long-term, the process of repairing the supply-demand relationship is accompanied by low-speed growth in air transport capacity supply and a faster pace of demand recovery, and this situation is likely to last for a long time, driving the profitability of airlines upward.
(This article is for reference only and does not represent any investment advice on our part. If you need to use relevant information, please refer to the original text of the report.)
Selected report source: [Future Think Tank]. Future Think Tank - Official website
