After 2021, airline stocks outperform the market, which can be divided into two distinct stages: Closely related to fundamental changes: February-August 21 February-April 21, as the epidemic eased after the Spring Festival, the number of domestic passengers recovered Better, airl

(Report Producer/Author: Huachuang Securities, Wu Yifan, Liu Yang)

Foreword: Airlines stocks that significantly outperformed the market in January 2022 - it is expected to be elastic enough to drive the market

Since the 2020 COVID-19 epidemic, my country's aviation industry has suffered The heavy setback is reflected in the industry's heavy losses for two consecutive years. Taking the three major airlines as an example, Air China, China Southern Airlines , and China Eastern Airlines suffered losses respectively in 2020. 144, 10.8 and 11.8 billion. In 21, the three major airlines will have pre-emptive losses of 145-170, 113-128 and 110-13.5 billion respectively. The share prices of the three major airlines fell by about 20% on average in 2020, underperforming the CSI 300 by as much as 46 percentage points.

After 2021, airline stocks outperform the market, which can be divided into two distinct stages: Closely related to fundamental changes: February-August 21 February-April 21, as the epidemic eased after the Spring Festival, the number of domestic passengers recovered Better, airline stocks generally rebounded by about 30%. From May to August, due to the spread of epidemics in Guangzhou, Shenzhen, Nanjing and other places, especially in July The epidemic in Nanjing in March dispelled expectations for the peak summer season, causing airline stocks to generally fall by about 30%. Overall, this period is closely related to the trend of fundamental changes.

is more relevant to future expectations: From August 21 to the present

From August 21 to 2022, the performance of airline stocks has significantly outperformed the market. Looking only at one month in 2022, the average increase of the three major airlines is nearly 10%. , outperforming the CSI 300 by 17 percentage points, and starting from August 21, Air China rose by more than 50%; on the other hand, airline stocks diverged, reflected in the fact that the performance of the three major airlines was significantly better than that of private airlines represented by Spring and Autumn.

At this stage, the domestic epidemic is still spreading in many places, oil prices continue to rise, and the industry's operations in 21Q4 have suffered severely, resulting in the general pre-losses of the three major airlines that may exceed 2020. The stock price performance deviates from the fundamentals, but expectations for the fundamentals are getting stronger and stronger, based on the progress of the new crown specific drug and the market's expectations for the future recovery of supply and demand-led industries continue to heat up.

In this article, we will further sort out the industry logic and take a look at what is the driving force behind the current strong performance of airline stocks?

We believe that forward profit elasticity is large enough to drive the market for aviation stocks.

In "Price Elasticity, Cyclical Charm - The Road to Aviation Recovery Series 3" we mentioned that for most industries with cyclical attributes, Price elasticity is its charm, and the same is true for the aviation industry. Once the original recovery cycle comes, how big the price elasticity will be and whether it can match the historical peak is the core of concern. Similarly, for investment in cyclical stocks, the expectation of profit elasticity determines the strength, height and participation of the market. Especially for airline stocks, which are industries that are more influenced by external factors, only forward profit elasticity is large enough to promote market development.

Therefore, what we need to discuss is, assuming that this recovery cycle is realized, what will the high point profit be?

The focus is to take Air China as an example. If the "King Returns", can it achieve peak performance of 20 billion+ profits? According to the historical valuation level of airline stocks, if 10-15 times PE is given, the market value can reach 2000-3000 billion, which is sufficiently attractive compared to the current space.

1. Focus: If the "King Returns", can Air China achieve 20 billion+ profits at its peak performance?

(1) Assuming that the profit of a single aircraft goes back to 2010, a simple calculation can reach 20 billion + profit

Statistics Since 2009, taking Air China as an example, the peak of single aircraft foreign exchange deduction profit was 33.88 million yuan in 2010, followed by 2009 and The average annual profit in 2015 was around 20 million, while the average profit per machine from 2011 to 2019 was Around 12 million. Note: The profits here refer to the profits after deducting exchange gains and losses, and the fleet size adopts the average value during the year. Air China's fleet size at the end of 2021 is 746 aircraft. Excluding business jets and regional aircraft, it operates a fleet of 734 aircraft. Based on this simple calculation, assuming that the profit from foreign exchange deductions for a single aircraft is 30 million+, the corresponding net profit from foreign exchange deductions is expected to exceed 20 billion.

The core point of this calculation is that once it enters the recovery cycle, can it return to the single-machine profitability level of 2010? We analyze it from the two dimensions of cost and income:

1. We compare it through the cost side ( jet fuel and unit fuel deduction cost), and it is not expected to be higher than 2010

1) Oil price:

Jet fuel cost is an airline cost item The projects with the highest proportion usually account for about 25%-30% of the cost; Looking back at 2010, the average oil price was 80 Yuan/barrel, the average comprehensive mining cost of domestic aviation oil is 5,700 yuan/ton. The price of cloth oil at the end of 2021 is close to that in 2010, and the comprehensive mining cost is 5,400 yuan/ton, slightly lower than that of that year. Oil prices have surged since January 2022, and it is expected that The overall jet fuel price level in 2022-23 may be closer to that in 2010. At the same time, the adjustment mechanism of fuel surcharge and can help airlines pass on cost increases to a certain extent.

2) Unit fuel deduction costs:

From 2010 to 2019, the fuel deduction costs of the three major airlines first increased and then fell. In particular, airlines have emphasized cost reduction and efficiency improvement in recent years, which has promoted the decline in fuel deduction costs. The average seat-kilometer cost of the three major airlines in 2019 was 0.270 yuan, a decrease of approximately 5% from 0.283 yuan in 2010. In 2020, affected by the epidemic, the business volume dropped sharply, resulting in a significant increase in the unit cost of and . During the epidemic, airlines implemented stricter control on the cost side. It is expected that after the business volume returns to normal, the cost will return to even lower than 2019 levels.

2. Revenue side: Pay attention to whether price elasticity can be released.

After the seat-kilometer revenue level of airlines peaked in 2011, it has shown an overall downward trend. Comparing the revenue levels of the three major airlines in 2010 and 2019, the average seat-kilometer revenue dropped by about 18% (or 0.1 yuan). According to our previous report analysis, the gap between industry supply and demand reached 5.8pts in 2010, and the seat-kilometer revenue of China Southern Airlines and China Eastern increased by more than 20% year-on-year. According to our calculations, industry supply will be at a low speed from 2019 to 2023. If the impact of the subsequent epidemic weakens and demand is released normally, once there is a rapid rebound, the gap between supply and demand is likely to reach a high level, combined with the liberalization of fare marketization. There is a certain probability of pushing revenue to 10-year levels.

Therefore, we believe that if we calculate based on the net profit of foreign exchange deduction for a single aircraft in 2010, based on Air China’s current fleet size of more than 700 aircraft, the profit will exceed 20 billion. In recent years, airlines have continued to promote the control of unit fuel deduction costs, so the focus of measuring single-plane profitability is the contribution of single-plane revenue. When the supply and demand structure of the industry reaches the expectations of our series of reports on the road to recovery, Air China's core routes have obvious ability to increase actual fares, thereby promoting an increase in overall single-plane revenue.

(2) Hub profit + price elasticity: There is also a chance to impact 20 billion

Hub profit calculation: Based on the average net profit of single aircraft deductions from 2011 to 2019 (about 12 million), based on the fleet size of 734 aircraft, Air China’s profit will exceed 8 billion . Calculation of price elasticity contribution: If the previous report estimates that when the discount rate of Air China's top 20 routes reaches 80%, the profit increase will exceed 10 billion, plus the possible incremental contribution of other routes, it will also have the opportunity to impact 20 billion profits volume.

1. Assuming an ideal recovery, it is estimated that the price elasticity released by the TOP20 routes can help Air China increase its profits by more than 10 billion.

After the inflection point of demand recovery arrives, we expect the industry to shift from local regions, local time periods, and staged supply and demand gap elasticity to the overall situation. and push up price elasticity. Especially since the market-oriented reform of passenger prices in 2017, the price of full-price economy class tickets on some core routes has been raised five times, with a cumulative increase of nearly 60%, which means that airlines will have greater ticket flexibility than before amid tight supply and demand.

We select Air China’s top 20 domestic routes for statistical calculations (we expect the demand for these routes to be stronger, and it is easier for airlines to implement price optimization strategies)

Indicator selection instructions: 1) We screen the capacity allocation in the 2021 winter and spring season schedule TOP20 routes; 2) We use Wind’s statistics on the passenger traffic of these routes in 2018 (statistics are only available to In 2018, it is expected to exceed 18 years after returning to normal in 2019 and in the future); 3) The highest full-price economy class ticket: Check the current highest full-price economy class ticket level of airlines on this route from Ctrip.com. It should be noted that due to the different advantages of each airline, the price adjustment strategies are also different, and there is a phenomenon of multiple prices on one route; 4) Hypothetical discount: We assume that the discount is 60% for flights between Beijing, Shanghai, Guangzhou and Shenzhen, and 50% for other flights ( Assuming it returns to a relatively normal level, not a price under tight supply and demand);

Based on the above conditions, we count Air China’s TOP20 routes: Passenger volume basis, discount rate in 2018 Under the 50-60% scenario, the total revenue will reach 28.7 billion, which is equivalent to 35% of Air China’s domestic passenger revenue in 2019. If the price is increased by 10%, the corresponding increase in revenue will be 2.9 billion, corresponding to more than 2 billion profits; and once supply and demand are tight, discounts If the rate increases to 80%, the corresponding revenue of the top 20 routes will reach 42.9 billion, an increase of 14.2 billion in revenue, corresponding to a profit increase of more than 10 billion.

Note: As of January, among Air China's Top 20 routes for the 2021 winter and spring season, 9 routes have raised prices 5 times, an increase of nearly 60% from the original guide price; 3 routes have raised prices 4 times, with an average increase of 45 About %; the price of 4 items was raised 3 times, and the price of 4 items was raised 2 times. The proportion of routes with cumulative price increases exceeding 30% accounts for 80%.

Based on the above two calculation methods, it is estimated that if the industry recovers and the aviation leader returns, there is a probability of achieving a peak performance of 20 billion + profits. It should be noted that although we expect that this round of peak performance may exceed previous results, in terms of time, it is expected that 2023 will be the first time to achieve a new high profit level in a single quarter. (Source of report: Future Think Tank)

2. Core elements: Whether price elasticity can be achieved

(1) Within the framework of policy permission, airlines have stronger independent adjustment capabilities

my country's civil aviation prices have experienced from strict government control to gradual relaxation Then to the exploration process of open pricing. In the process of opening fares, it also went through multiple experiments from point to line to surface. Until December 2017, the Civil Aviation Administration and the National Development and Reform Commission jointly initiated the "Relevant Issues on Further Promoting the Reform of Civil Aviation Domestic Air Passenger Transport Prices". Notice" marks the official start of large-scale market-oriented reform of fares.

According to the relevant opinions on the price reform of civil aviation domestic routes issued by civil aviation aircraft and the National Development and Reform Commission in December 2017 and November 2020, airlines have significantly enhanced independent pricing capabilities within the policy framework. , and open the profit cap.

Among them: In December 2017, the Civil Aviation Administration and the National Development and Reform Commission issued the "Notice on Issues Concerning Further Promoting the Reform of Civil Aviation Domestic Air Passenger Transport Prices" and decided to further promote the marketization of civil aviation domestic air passenger transport prices (hereinafter referred to as domestic passenger transport prices) Reform and establish and improve the mechanism in which prices are mainly determined by the market.

a) Principle of liberalization: Domestic routes operated by more than 5 (inclusive) air transport companies are liberalized. Domestic passenger fares are subject to market-adjusted prices and are independently formulated by air transport companies in accordance with the law. In November 2020, the Civil Aviation Administration and the National Development and Reform Commission issued the "Notice on Issues Concerning Further Deepening the Reform of Civil Aviation Domestic Route Transport Prices", lowering the above-mentioned liberalization principle from more than 5 (inclusive) to more than 3 (inclusive) ), effective from December 1, 2020.

b) Adjustment scope: Each air transport company increases the number of routes for which economy class passengers who implement market-adjusted prices without discounts publish their fares every flight season. In principle, it shall not exceed 15% of the total number of routes operated by the enterprise that implement market-adjusted prices in the previous season. (If there are less than 10 routes, a maximum of 10 can be adjusted);

c) Adjustment range: The cumulative increase in the announced freight rate for each route per season without discounts shall not exceed 10%.As of the end of 2020, a total of 1,698 routes have implemented market-adjusted prices, accounting for 36.2% of the 4,686 domestic routes in 2020. The top 50 routes in the country by passenger volume have all been included in the market-adjusted price route catalog.

Compared with 2017, 17 of the top 30 domestic routes have increased prices by nearly 60% (5 times), and 93% of routes have increased prices more than 3 times. Starting from December 29, 2021, various airlines have successively launched a new round of price adjustments. Among them, China Eastern Airlines and Air China have successively raised the full price of economy class tickets on the Shanghai-Beijing route from 1,790 yuan to 1,960 yuan, an increase of 9.5%. This round of price increases was in 2017 Since the price marketization reform was promoted in December 2018, the Beijing-Shanghai line ranked fifth The full price of economy class tickets was raised for the first time from the initial 1,240 yuan to 1,960 yuan, an increase of 58%.

In this round of price adjustments, 7 of the Top 10 routes have made their fifth price increase, including China Eastern Airlines and Air China (Beijing-Shanghai); Air China (Beijing-Chengdu); Air China, Shenzhen Airlines (Beijing-Shenzhen); China Eastern Airlines and China Southern Airlines (Shanghai-Guangzhou); Air China and China Southern (Beijing-Guangzhou); China Eastern (Shanghai-Chengdu) and Air China (Beijing-Chongqing) have raised prices again by approximately 10%, with a cumulative increase of nearly 60%. It is expected that some airlines and some routes will continue to carry out price adjustments in the future. According to

statistics, the fares of the top 30 routes with the largest weekly seat supply in the winter and spring season of 2021 (one city and two routes are merged into the same route), the highest published fares of 17 routes have increased by an average of nearly 60% compared with the original guide price. That is, the price increased 5 times; 7 routes increased prices 4 times, with an average increase of 45%; 4 more routes increased prices 3 times, with an average increase of 32%; and the remaining 2 routes increased prices 2 times, with an average increase of 32%. An average increase of 21%.

At the same time, as we analyzed in series report 3, Chinese airlines pay more attention to revenue management and put it into practice. That is, maximizing revenue through differentiated pricing and space control. Pricing and seat control have become the most important aspects of airline revenue management. Taking China Eastern Airlines' Shanghai Hongqiao-Chengdu Shuangliu Airport route as an example, the economy class alone includes youth specials, discounted economy class, mileage discounts and standard economy class products.

Different cabin prices correspond to different conditions. For discounted economy class R class, the refund rates before 7 days before departure, 2-7 days before departure, 4-48 hours before departure, and after 4 hours before departure are 20% of the face price respectively. %, 30%, 70% and 90%; the changed rates are 10%, 20%, 50% and 70%, no transfer to other airlines allowed. The refund rates for standard economy class Y class are 5%, 5%, 10% and 20% respectively, and the change rates are 0%, 5%, 5% and 10% respectively, and the tickets can be transferred to other airlines. Obviously, standard economy Y-class tickets offer significantly more flexibility than discount economy, and the fares are also higher.

However, multi-tiered fares may carry certain risks, as they may cause high-priced travelers to switch to lower-priced products. Therefore, another major goal of differentiated pricing and is to minimize the occurrence of passenger transfer behavior. When the price difference between products is too large, or exceeds the utility brought by attribute differences, high-priced passengers may give up some flexibility or other service requirements and purchase low-price tickets instead.

Taking the example of China Eastern Airlines mentioned above, in order to reduce the transfer behavior caused by the price difference between discount economy class R class and standard economy class Y class, discount economy class also provides E class tickets, and the refund rates are 10%, 15% and 30 respectively. % and 40%, and the change rates are 5%, 10%, 25% and 35%. Its flexibility is between the discount economy class R class and the standard economy class Y class. The fare It is also somewhere in between, providing a more eclectic choice for travelers with corresponding needs.

(2) Comparing overseas airlines and domestic high-speed rail fares, there is still room for domestic civil aviation fares

1. Global comparison, there is still a lot of room for domestic airline fares

From a global comparison, domestic airlines and top foreign airlines The fare gap is still quite obvious. Comparing the revenue per passenger kilometer of each airline in 2019, the average of the three major domestic airlines was 0.506 yuan, with Air China's highest being 0.534 yuan. ANA (as of fiscal year 2019/3/31) is far ahead among the world's major airlines, converted to RMB 0.858/km, exceeding the average level of the three major airlines by nearly 70%.

American Delta Air Lines , United Airlines , and American Airlines all have revenue per passenger kilometers of more than 0.7 yuan. Southwest Airlines has a relatively low revenue of 0.679 yuan. The average revenue per passenger kilometers of the four airlines is 0.725 yuan, exceeding the three major airlines. 43% of the aviation average. Among European airlines, Lufthansa has the highest price of 0.734 yuan/passenger kilometer, British Airways 0.608 yuan/passenger kilometer, and Air France-KLM 0.586 yuan/passenger kilometer. The average value is 0.643 yuan, which is 27% higher than the average of the three major airlines.

2. The difference between domestic civil aviation fares and high-speed rail prices is small

In 2019, the passenger-kilometer revenue of the three major airlines was 0.49-0.53 yuan, with an average of 0.51 yuan. The two private airlines were relatively lower, Spring and Autumn 0.36 yuan, and Jixiang 0.47 yuan. According to statistics on the fares of some high-speed railway sections of the "Eight Vertical and Eight Horizontal" high-speed railways, the current published price per mileage of second-class high-speed rail with a speed of 300-350 kilometers per hour (without discount price) is mostly between 0.4-0.55 yuan, and the published price per mileage of first-class seats The fare is between 0.65-0.9 yuan, and the business class ticket is between 1.2-2 yuan.

The above-mentioned high-speed rail fares are non-discounted prices. Observing the actual sales price of the corresponding section of the website 12306, the actual selling price of second-class seats is about 0.38-0.48 yuan, first-class seats are about 0.65-0.78 yuan, and business seats are 1.23 -1.54 yuan. Based on the weighted calculation based on the number of seats in each class of a 16-row Fuxing , the unit mileage price is between 0.43-0.54 yuan. To sum up, the price difference between my country's civil aviation fares and high-speed rail fares is relatively small.

(3) The degree of price elasticity is ultimately determined by supply and demand

1. The aviation industry is a typical industry with price elasticity

Cost structure Look: airline costs mainly include aviation fuel, aircraft depreciation (lease fees), landing fees, and employees Salaries, maintenance fees, food machine supplies and other costs. Usually "jet fuel + depreciation (lease) + labor + takeoff and landing" accounts for about 80%. Take the three major aviation costs in 2019 before the epidemic as an example: aviation fuel is the largest cost item, accounting for about 30%; followed by aircraft depreciation and leasing fees accounting for about 18.5%; and labor costs accounting for 17.1% %; take-off and landing fees account for 14.2%. In a structure like

: depreciation (lease) is a fixed cost; and based on a single flight, as long as the flight is operated, fixed takeoff and landing, labor costs, and corresponding (volume-related) flight costs will occur regardless of the passenger load factor. Fuel, meals, etc. expenses. Therefore, once the price increases significantly, the profit elasticity will be greater.

We make a simple calculation based on the data of listed airlines in 2019: The three major airlines: the total passenger revenue is 373.3 billion yuan, of which domestic passenger revenue is 255.9 billion yuan, accounting for 69%; assuming that the ticket price increases by 1%, the corresponding increase in profits is 2.8 billion yuan, which is equivalent to 23% of the profit in 2019; assuming that domestic ticket prices increase by 1%, this corresponds to an increase in profit of 1.9 billion, equivalent to 20% of the profit in 2019 16%. Assuming that fares increase by 1%, Air China, China Southern Airlines and China Eastern Airlines will increase profits by RMB 90 million, RMB 1 billion and RMB 800 million respectively. Assuming that domestic fares increase by 1%, the corresponding increased profits will be RMB 600 million, RMB 800 million and RMB 500 million respectively.

Private aviation: Spring Airlines Passenger revenue in 2019 was 14.4 billion, of which domestic passenger revenue was 9.3 billion, accounting for 65%. Assuming that ticket prices increased by 1%, the corresponding profit increased by 110 million, equivalent to 6% of the profit in 2019. Assuming A 1% increase in domestic ticket prices corresponds to an increase in profit of RMB 70 million, which is equivalent to 10% of the profit in 2019. 4%;

Juneyao Airlines’ passenger revenue in 2019 was 16.3 billion, of which domestic passenger revenue was 12.9 billion, accounting for 80%. Assuming that the ticket price increased by 1%, the corresponding profit increased by 120 million, equivalent to 12% of the profit in 2019. Assuming that domestic ticket sales A 1% increase in price corresponds to an increase in profit of RMB 100 million, which is equivalent to 10% of the profit in 2019. Note: The above calculation does not take into account the different pricing capabilities of each company due to different route resources and customer structures in actual implementation, and is for reference only.

2. From the historical data of the United States, there is a positive correlation between fare levels and passenger load factors.

When demand is good but capacity is limited, airlines will see an increase in passenger load factors and push up ticket prices.We analyzed the passenger mile revenue and passenger load factor data of American Airlines and Southwest Airlines from 2001 to 2020 and found that although the fare is affected by many factors, when the passenger load factor of American Airlines exceeds 75% (Southwest Airlines’ passenger load factor exceeds 70% time), the overall situation basically shows a more obvious positive correlation with the passenger load factor level (except for the financial crisis in 08-09). It is expected that when the passenger load factor is below 75% (or 70%), airlines will consider using prices to stimulate passenger load factors.

Looking further, when the passenger load factor increases significantly, the effect on fares is also more obvious: Observe that from 2003 to 2006, the passenger load factor of the US civil aviation industry continued to increase, and the passenger load factor increased by 1%, corresponding to the fare (passenger mile revenue) Increased by 1.1-1.2%. American Airlines' passenger load factor continued to increase from 72.4% in 2003 to 79.7% in 2006, a total increase of 7.3 percentage points. Passenger mile revenue increased from 12.6 cents to 13.6 cents, a cumulative increase of 8.2%, and corresponding seat mile revenue increased by 19%. ; That is, for every 1% increase in passenger load factor, passenger revenue increases by 1.1%, which together promotes an average increase in seat revenue of 2.6%.

Southwest Airlines' passenger load factor increased from 66.8% in 2003 to 73.1% in 2006, a total increase of 6.3 percentage points. Passenger mile revenue increased from 12.0 cents to 12.9 cents, a cumulative increase of 7.9%. Seat mile revenue increased from 8.0 US cents. cents rose to 9.4 cents, a cumulative increase of 18.0%; corresponding to every increase in passenger load factor 1%, the average passenger revenue increased by 1.2%, jointly driving the average seat revenue to increase by 2.9%.

Observing from 2009 to 2014: Southwest Airlines’ passenger load factor continued to increase from 76% in 2009 to 82.5% in 2014, an increase of 6.5 percentage points, while passenger mile revenue increased from US$13.28 to US$16.34, an increase of 23%, a significant exceeds the load factor elasticity. American Airlines' passenger load factor increased from 80% in 2009 to more than 82%. The improvement was limited, but passenger mile revenue increased from 13.05 cents to 17.04 cents, an increase of 31%. This means that for airlines, when the passenger load factor exceeds a certain stage, the fare will show a more obvious elastic level (the trigger points of different airlines are different).

3. According to my country’s data: In 2010, the difference in supply and demand structure promoted the increase in passenger load factor, which in turn pushed up ticket prices.

In 2010, the industry’s RPK growth rate reached 19.7% year-on-year, and ASK growth rate was 13.8%, with the difference widening to 5.8 percentage points. Industry passenger load factor: From the lowest point of 70.9% in May 2008, it began to trend upward. By March 2010, it exceeded the 80% passenger load factor for the first time, and rose to 84.2% in August 2010.

The supply and demand gap of the three major airlines in 10 years has all returned to positive, and the passenger load factor has increased significantly:

Air China: In 2010, ASK increased by 34% year-on-year, RPK increased by 40% year-on-year, and the passenger load factor increased from 76.5% to 80.0%. Compared with 2007 before the financial crisis, ASK increased by 48% and RPK increased by 51% (Shenzhen Airlines was consolidated in 2010).

China Southern Airlines: In 2010, ASK increased by 14% year-on-year, RPK increased by 20% year-on-year, and the passenger load factor increased from 75.3% to 79.2%. Compared with 2007, ASK increased by 28.0% and RPK increased by 36%.

China Eastern Airlines: In 2010, ASK increased by 41% year-on-year, RPK increased by 53% year-on-year, and the passenger load factor increased from 72.2% to 78.0%. Compared with 2007, ASK increased by 54% and RPK increased by 63% (Shanghai Airlines was consolidated in 2010).

Correspondingly, the revenue of the three major airlines rebounded significantly in 2010:

Air China: Seat-kilometre revenue increased by 17.9% year-on-year in 2010, of which passenger load factor increased by 3.5pts and passenger-kilometre revenue increased by 12.7%. Compared with 2017, seat-kilometre revenue increased by 12.7%. Increased by 5.4%, including an increase in passenger load factor 1.6pts, revenue per passenger kilometers increased by 3.3%.

China Southern Airlines: In 2010, seat-kilometre revenue increased by 20.2% year-on-year, of which the passenger load factor increased by 3.9pts, and the passenger-kilometre revenue increased by 14.3%. Compared with 2017, the seat-kilometre revenue increased by 7.9%, of which the passenger load factor increased by 4.8pts, and the passenger-kilometre revenue increased by 14.3%. Increased by 1.4%.

China Eastern Airlines: In 2010, seat-kilometre revenue increased by 26.6% year-on-year, of which the passenger load factor increased by 5.8pts, and the passenger-kilometre revenue increased by 17.1%. Compared with 2017, the seat-kilometre revenue increased by 8.7%, of which the passenger load factor increased by 4.4pts, and the passenger-kilometre revenue increased by 8.7%. An increase of 2.6%.

3. Key assumptions: Whether supply and demand support the recovery logic

(1) Clearly visible supply: Under the hard constraints of the aircraft asset core, a sharp slowdown is a foregone conclusion

To measure the growth rate of industry supply, ASK (Available Seat Kilometers) is usually used For this indicator, ASK = ∑ (flight kilometers × number of seats available for sale), which is the sum of the products of the maximum number of seats available for each segment and the distance of the segment. The factors that affect this indicator are mainly aircraft assets (different aircraft types correspond to different number of seats) and time resources (different flight distances and aircraft utilization rates of domestic and international routes).

Among them, we believe that the quantity of aircraft assets is the core hard constraint on supply. Based on the complexity of the aircraft manufacturing supply chain, we simplified the model, that is, according to the pre-production, production, and post-production of aircraft manufacturing, along with orders, production and manufacturing, aircraft manufacturer inventory, leasing company inventory fleet, airline inventory fleet, etc. In terms of sorting out the current situation of the aircraft supply side, and judging the future growth rate.

The number of passenger aircraft in my country's civil aviation industry from 2018 to 21 was 3479, 3645, 3717 and 3856 respectively. After excluding regional aircraft, the passenger fleet size was 3292, 3454, 3516 and 3645 respectively. In 2019, the growth rate slowed down due to the grounding of the MAX. However, the growth rate has been maintained at a low rate since the COVID-19 epidemic in 2020. The fleet size at the end of 21 was less than 6% higher than that in 19. (Note: The data for 2021 is estimated) What we need to analyze is what will be the capacity growth range of the industry in 22-23?

1, Boeing + Airbus order calculations: 579 aircraft to be delivered to mainland China, equivalent to 17% of the fleet at the end of 2019

On the basis of "Series Report 2", we updated the calculations, comprehensively signing directly with airlines as customers orders, and orders with leasing companies as customers (taking into account the estimated proportion of mainland China), aircraft currently waiting to be delivered to mainland China The total number of aircraft is 579 (Boeing 234, Airbus 345), of which orders from leasing companies account for 66%, and 737MAX reaches 211, accounting for 37%. The 579 aircraft are equivalent to 16% of the industry's passenger aircraft capacity at the end of 2021 (3,645 aircraft after excluding regional aircraft) and 17% at the end of 2019. Looking at the delivery progress of

: The annual report of the leasing company predicts that about 46-64% of new orders will be delivered in 2024 and after, assuming that 50% will be delivered before 2024; it is also assumed that all airline orders will be delivered before 2024. The corresponding number of aircraft delivered in 2023 and before is about 389. If Boeing 737MAX is excluded, there will be only 231 aircraft, accounting for 6%-11% of the capacity at the end of 21 (after excluding regional aircraft), which is equivalent to the capacity at the end of 2019 7%-11%. (Report source: Future Think Tank)

1) Boeing: 737 MAX will maintain low production for a long time, and the production capacity will climb relatively slowly.

In terms of narrow-body aircraft: 737MAX is Boeing’s current main model. In the second quarter of 2018, the monthly production capacity of the Boeing 737 series 52 aircraft, and planned to continue to increase to 57 aircraft in 2019, but was later suspended Aircraft suspended production; in December 2020, the 737MAX resumed production. In 21Q4, the company stated that the monthly production capacity of the 737 MAX in January 22 was 27 aircraft, and is expected to increase to 31 aircraft/month soon. Regarding whether the subsequent production capacity will be further increased, the supply chain Competence is an important object to monitor.

In terms of wide-body aircraft: The current monthly output of the 787 Dreamliner is 2 aircraft, which is far lower than the level of 14 aircraft in 2019. Mainly due to potential technical problems, the delivery of the 787 was suspended and production capacity was actively reduced. The company expects to gradually increase production capacity to 5 aircraft after resumption of delivery. The current monthly production capacity of 777/777X is 2 aircraft, which is expected to increase to 3 aircraft/month this year.

2) Airbus: Narrow-body aircraft production capacity is expected to return to pre-epidemic levels in the summer of 2023.

Narrow-body aircraft: In 2020, affected by delayed deliveries by airlines and reduced new orders, the monthly production capacity of the Airbus A320 series dropped from 63 aircraft to 63 aircraft. 40 racks. As the pace of recovery in the global civil aviation industry accelerates, Airbus announced in May 2021 a production capacity adjustment plan, planning to increase A320 production capacity to 45 aircraft in the fourth quarter of 21. According to the latest data released in 21Q3, A320 series production capacity is planned to increase to 65 aircraft/month in the summer of 2023, which is basically the same as before the epidemic.

Wide-body aircraft: The current monthly production capacity of A330 is 2 aircraft, and it is planned to increase the monthly production to 3 aircraft by the end of 2022.The A350 production capacity is planned to increase from the current monthly production of nearly 5 aircraft to 6 aircraft by early 2023.

Overall, the overall production capacity of narrow-body machines before 2023 is likely to be lower than the pre-epidemic level. Airbus's production capacity is climbing relatively quickly, and it is currently mainly adjusting its production capacity planning to match the demand rhythm of airlines. According to its latest plan, it will still take about a year and a half for the A320 to return to pre-epidemic production capacity levels. Due to the 737MAX, Boeing's recovery progress will be relatively tortuous and complicated. On the one hand, the uncertainty about the return time has greatly affected the production plan and progress of its narrow-body aircraft; on the other hand, the long-term suspension of production in the early stage has caused the MAX model supply chain to maintain low-level production, and the supply chain has restricted Boeing. will be more obvious, and its production capacity ramp is expected to be slower than that of Airbus. We follow the production pace disclosed by Boeing and Airbus and give the production rates of the two companies. It is assumed that the Boeing 737MAX production rate will increase from 31 aircraft/month to 40 aircraft/month starting in 2023.

According to the production rate: Boeing/Airbus will produce 368/540 and 480/660 aircraft respectively in 2022-23. Taking 22 years as the starting point, superimposed inventory (335 737MAX and about 60 A320 aircraft respectively), from 21Q4 to the end of 23 A total of 2,443 narrow-body aircraft can be produced/delivered. If additional 10% are wide-body aircraft, totaling approximately 2,687 aircraft. In normal years, Chinese airlines usually account for about 1/4 of Boeing and Airbus deliveries, corresponding to about 715 aircraft (including about 650 narrow-body aircraft) ultimately delivered to Chinese airlines, accounting for the entire industry's passenger fleet at the end of 2019 (excluding 20.7% of branch line models).

This number is higher than the aforementioned cumulative undelivered orders of 389 aircraft by Chinese airlines/leasing companies (delivered in 2023 and before). On the one hand, it includes Boeing/Airbus’s optimistic expectations for the progress of the market improvement in 22-23. On the other hand, it Due to the impact of the epidemic in the past two years, airlines in mainland my country have basically not placed new orders. It should be noted that among the above-mentioned 2,687 aircraft, there are a total of 1,183 Boeing 737MAX (in stock + not in production), of which about 335 are expected to eventually belong to Chinese airlines, and there is great uncertainty in their delivery.

2. Minimum growth rate: 23VS19 is only about 11% growth (assuming MAX is not delivered, calculated based on the airline’s introduction plan)

According to the airline’s current announcement of the aircraft introduction and withdrawal progress, and combined with the latest fleet number, we estimate that in the future Listed airline fleet size in 2023. (Note: The calculations do not include the business jet fleet)

Among them:

Air China: 741 aircraft fleet as of the end of 2021. According to the 2021Q3 performance release materials released on the company's website, it plans to introduce 34 and 14 aircraft respectively in 2022-23. fleet, withdrawing 14 and 17 aircraft fleets, meaning that 2022-23 The annual net additions are 20 and -3 aircraft respectively, and the company's fleet size will be 753 and 750 aircraft in 2022-23. The above-mentioned introduction plan does not include the 737MAX, but looking at the company's 2018 annual report, it disclosed a subsequent introduction plan of 70 737s, most of which are expected to be 737MAX and have not been delivered.

China Eastern Airlines: As of the end of 2021, it has a fleet of 752 aircraft. Based on the company’s 2021 semi-annual report plan and the actual completion status in 2021, we estimate that the company’s fleet size will be 796 and 797 aircraft respectively in 2022-23. The company also disclosed that based on confirmed orders, the company plans to introduce 9 aircraft and withdraw 21 aircraft in 2024. Similarly, this plan does not include the 737MAX. According to the company’s 2020 annual report, a total of 46 737MAX aircraft have not been delivered.

China Southern Airlines: As of the end of 2021, it operates a fleet of 862 aircraft, making it the largest airline fleet in Asia. According to the 2020 annual report, excluding the 737MAX model, the estimated fleet size in 2022-23 is 884 and 902 aircraft respectively. Team. Taking into account the introduction of the 737MAX, a total of 123 aircraft have not been delivered. Hainan Airlines: It operates a fleet of 344 aircraft as of the end of 2021. According to its restructuring report, the planned fleet in 22-23 is expected to be 382 and 414 aircraft.

In view of the uncertainty of the 737MAX resumption introduction process, we exclude all airlines’ plans for the 737MAX introduction. That is, assuming that the 737MAX can return to flight in 2023 but cannot deliver orders, the fleet size of the six listed companies in 2023 will increase by 10.9% compared with 19 years ago. %, which means that the compound growth rate from 19 to 23 years is 2.6%, and the compound growth rate from 21 to 23 years is 2.6%. 3.3%, taking into account that listed companies account for about 76% of the industry fleet, the industry fleet size is expected to be about 11% in 2023 compared to 2019, which is significantly slower than the average growth rate of 9.8% in 2014-18. Assuming there are no significant fluctuations in the exit plan, this growth rate can be considered to be the lowest growth rate for the airline’s capacity in the next two years.

3, the highest growth rate: 23VS19 growth rate of 21.5% (assuming that the 737 is delivered normally, Boeing and Airbus receive new orders and produce normally and deliver according to the rhythm)

Assume that the 737MAX returns to normal and starts delivery before 2023, and Boeing and Airbus production capacity resumes according to the rhythm , domestic introduction returns to normal. The core variable constrained under this assumption is the production capacity of Boeing and Airbus. According to the aforementioned calculations, Boeing and Airbus can produce a total of 715 aircraft for delivery to mainland China. Introduction: It is expected that 347 and 368 aircraft will be introduced in 2022-23 respectively, returning to the pre-2019 level.

If the 737MAX resumes flying from 22Q1, the progress will be in line with Boeing’s expectations. It is expected that the production rate recovery process will be basically similar to the above. That is, by the end of 23, Boeing and Airbus can provide a total of approximately 715 incremental aircraft to Chinese airlines, of which 335 There are about 123 737MAXs currently in inventory.

According to Boeing's expectations, "Based on the assumption that deliveries to China will resume in Q1 of 2022, the current 335 737 MAX will be basically delivered by the end of 2023, and the inventory delivery in 2022 will be more than 23 years." We assume that 60% of the 123 737MAX in stock will be delivered in 2022 and 40% in 23. Other incremental orders will be delivered in proportion to the production progress. This corresponds to the introduction of 316 and 334 narrow-body aircraft in 2022-23 respectively (a total of 650 aircraft). ), considering an additional 10% of wide-body aircraft, the total is approximately 347 and 368 respectively.

Exit: It is expected that 69 and 74 aircraft will be withdrawn in 22-23 respectively, returning to the level of aircraft withdrawals 19 years ago. Assuming that the withdrawal fleet in 22-23 returns to the previous normal level, which is about 20% of the introduction, then 22-23 69 and 74 aircraft were withdrawn in 2016 respectively. Net increase: The industry has a net increase of 278 and 294 aircraft respectively in 2022 and 2023, totaling 572 aircraft. The 23VS19 growth rate is 21.5%.

Considering that the number of passenger fleets of listed airlines accounts for 76% of the entire industry in 2021, we assume that the above to be delivered is the same proportion, then the net increase in 22-23 will be 211 and 223 respectively, corresponding to the fleets at the end of 22/23. 3133 and 3356 aircraft, corresponding to the compound growth rate from 19 to 23 years 4.5%, with a compound growth rate of 7.2% from 21 to 23, which is still significantly slower than the average of 9.8% from 14 to 18. The realization of this growth rate requires: 737MAX to return to service before 2023 and normal introduction at the same time; Boeing and Airbus production capacity to resume at pace; airlines to place new orders or introduce them through leasing companies.

4, neutral growth rate: 23VS19 growth rate of 14.3% (assuming that the 737 is delivered normally, with no new orders, and delivered based on existing orders from Boeing and Airbus)

The core variable constrained under this assumption is the undelivered orders from Boeing and Airbus. Referring to the above, according to the caliber of Boeing and Airbus orders, the number of aircraft delivered to Chinese airlines in 2023 and before was approximately 389. Calculating the delivery progress based on the aforementioned production capacity distribution of Boeing and Airbus, while still considering the exit ratio at 20%, corresponding to the introduction of 192 and 197 aircraft respectively in 2022 and 23, the withdrawal of 38 and 39 aircraft respectively, and the net increase of 154 and 158 aircraft respectively, then 22, At the end of 2023, the industry fleet was 4010 and 4168 respectively. Compared with 2019, the growth rate in 2023 was 14.3%.

To sum up, the industry supply has experienced two consecutive years of low growth in 20-21. Through the calculation of each link of the hard constraints of aircraft assets, we found that a subsequent substantial slowdown is a foregone conclusion. The lowest growth rate: an increase of 11% in 2023 compared with 2019; the highest growth rate: an increase of 21.5% in 23 years compared with 2019; neutral growth rate: an increase of 14.3% in 23 years compared with 2019. Compared with the 2014-18 average growth rate of 9.8%, it has slowed down significantly. Even considering that the aircraft utilization rate has increased to a record high of 9.6 hours, it is a foregone conclusion that the growth rate of the introduction of transport capacity in the entire industry will slow down significantly.

(2) Demand: Strong and resilient

Based on our calculations on the supply side, the industry fleet size expansion in 2023 compared to 19 is expected to be between 11% and 22%. Then the last factor that determines price elasticity is demand. Compare to what state it will return to in 2019. In the recently released 14th Five-Year Plan for Civil Aviation, it is estimated that based on 2019, the compound growth rate of passenger traffic will reach 5.9% from 2019 to 2025. (In the ten years before 2019, the compound growth rate of the number of air passengers in my country reached double digits). If the compound growth rate from 2019 to 23 is 5-6%, the growth rate of passenger numbers in 2023 compared with 2019 will be 22%-26%, exceeding the range of the aforementioned supply growth rate.

Based on the strong resilience of demand and the post-epidemic recovery trend, we believe that demand may show a relatively explosive trend in the future after experiencing continuous backlog. We are in "Fulty, Can We Sui Tai?" Annual Outlook for the Hotel, Tourism, Aviation, Catering, and Film Industries—Nuggets in the Post-Epidemic Era Series (1)" reviewed the fluctuations in the aviation market since the epidemic. In terms of domestic demand, in April-May 2021, which was relatively unaffected by the epidemic, the number of domestic passengers exceeded the same period in 2019. The domestic general cycle can digest the adjustment of international flight capacity. Among them, April recovered to 96%, with domestic passengers achieving 10.7% growth, reflecting extremely strong domestic demand resilience.

In terms of international demand, in view of the domestic implementation of the "Five Ones" policy and relatively strict epidemic prevention policies, the number of domestic flights during the current period is only about 5% of the normal period, and the passenger transportation volume is only 2-3%. However, as we analyzed in Series 1, from the perspective of overseas airlines, international cross-border flows also have strong resilience once conditions permit. Although there is uncertainty about the impact of the epidemic, it is expected that with the increase in vaccination rates and the progress in the development of specific drugs, the aviation industry will be on the path to gradual recovery when the impact of the epidemic weakens. After experiencing continuous backlog, demand may show a relatively explosive trend in the future. In particular, we predict that based on the experience in 2020 and 2021, after March 2022, air travel data will most likely show a continued upward trend without additional impact from the epidemic.

(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