The Qingming holiday has passed, and the steady growth data seems to mean — the aviation sector is still unable to completely “recover”.

According to data from the Ministry of Transport, the number of people moving across regions during the Qingming holiday in 2024 was 750 million, an average of 250 million people per day, an average daily increase of 56.1% over the same period in 23, and an average daily increase of 20.9% over the same period in 19. According to travel methods, railways, highways, waterways, and civil aviation sent 4974, 69519, 280, and 5.1 million passengers respectively, up 75%, 55%, 85%, and 24% year on year, respectively, and 21%, 22%, -50%, and 2% year-on-year.

From the above data, it can be seen that due to the short three-day vacation, there was no obvious catalyst for airline travel demand this time, and the Spring Festival holiday period is relatively close, so the overall travel demand for civil aviation is relatively weak compared to previous holidays.

This is not a “good phenomenon” for the vast majority of civil aviation companies that are still in a state of “reversal of losses.”

According to incomplete statistics, in 2023, only 1 of the 6 airline stocks in the Hong Kong stock market achieved profit, that is, Cathay Pacific (00293) recorded net profit of 9.067 billion yuan, an increase of 225.29% over the previous year; the remaining 5 companies were still in a state of loss, while China Eastern Airlines shares (00670) had a net loss of as much as 8.168 billion yuan. As a result, the vast majority of aviation companies in technology are still in a “state of no return.”

So, from the outside to the inside, from shallow to deep, why is it so difficult for the aviation sector to “return blood”?

Judging from the four core indicators that best reflect whether the aviation industry can recover on the capacity side, passenger volume, passenger occupancy rate, and ticket price side, the aviation industry's operating data in 2023 has already picked up.

Capacity side: Domestic flights have surpassed 2019 in 2023, and international flights have recovered more than 60% by the end of the year. Specifically, according to flight manager data, the average number of passenger flights per day in 2023 was 13,514, down 6.5% from 2019. Although it has not yet recovered to the level of the epidemic, the gap has gradually narrowed. By route, domestic, international and regional flights were +5.2% and -59.1%, respectively, compared with 2019.

Passenger volume: The number of domestic passengers in 2023 has surpassed 2019, and international passenger traffic has recovered by more than 50% at the end of the year. According to data from the Civil Aviation Administration and flight managers, the entire civil aviation industry completed a total transportation turnover of 118.8 billion tons and kilometers in 2023, an increase of 98% over the previous year in '22 and a decrease of 8% from '19. Passenger traffic volume was 620 million, up 146% year on year 22, down 6% year on year; by route, passenger traffic on domestic routes exceeded 580 million, up 1.5% year on year 19, and passenger traffic volume on international and regional routes was 35.51 million, down 58% from year 19.

Passenger occupancy rate: As another important indicator of airline operations, the gap continues to narrow. According to flight managers, the passenger occupancy rate for passenger flights in 2023 was about 77.9%, down about 5 percentage points from 2019, but the passenger occupancy gap narrowed quarterly and continued to improve.

Fare side: According to Ctrip FlightAI data, the average ticket price (including oil) for each month of 2023 generally increased by 10%-20% compared to the same period in 2019. In terms of business routes, the average ticket price in 2023 was 1,049 yuan, which is basically the same as in 2019. The continued rise in ticket prices is obviously also helping airlines to improve their performance.

As can be seen from above, the overall operating situation of the domestic aviation industry has gradually returned to pre-pandemic levels, and even exceeded pre-pandemic levels, whether in terms of travel demand or capacity. However, operating data such as international routes may still be recovered. Of course, this is due to multiple factors such as the foreign macroeconomic environment and visa issues.

However, it should be noted that a recovery in domestic aviation operating data = a return to fundamentals.

According to data from the Civil Aviation Administration and the China Aviation Association, airlines lost about 17.1 billion yuan in 2023, a year-on-year loss of about 160 billion yuan, of which the cumulative profit for the first three quarters was about 9.6 billion yuan. The estimated loss for the fourth quarter was about 26.8 billion yuan, mainly due to the traditional off-season plus sharp rise in oil prices.

For example, compared with the performance of China Eastern Airlines, China Southern Airlines, and Air China, the “three major national carriers”, the revenue scale of Air China and China Southern Airlines recovered relatively rapidly, with Air China's revenue increasing 166.74% year-on-year to 141,100 billion yuan, while China Southern Airlines increased 83.70% to 159.929 billion yuan. The revenue scale of China Eastern Airlines has not fully recovered. In 2023, the airline recorded revenue of 113.741 billion yuan, an increase of 145.63% over the previous year, but it still recovered to 201912 100 million yuan.

China Eastern Airlines, which recovered the slowest in revenue scale, lost the most in 2023. Net losses attributable to shareholders of listed companies reached 8.168 billion yuan, while China Southern Airlines and Air China lost 4.209 billion yuan and 1,046 billion yuan respectively. The total loss of the three airlines exceeded 10 billion yuan, or 13.423 billion yuan.

Regarding the reason for the loss, China Eastern Airlines, which had the largest loss amount, pointed out in its financial report that some routes were affected by factors such as air rights restrictions, visa policies, and insufficient security resources, and that the overall recovery progress of international routes fell short of expectations; the transfer of wide-body airliners to the domestic market led to an increase in capacity supply in the domestic market; and factors such as weak travel demand for public and business travelers and exchange rate fluctuations, which led to strong operating pressure.

In fact, investment gains and losses also have a big impact on airline performance. During the reporting period, China Eastern Airlines had 7 subsidiaries and participating companies related to the main aviation business. Apart from China Eastern Airlines Technology and China United Airlines, which made a total profit of 69 million yuan, the remaining 5 companies lost a total of 3.848 billion yuan, which in turn had a certain negative impact on the company's overall loss. Meanwhile, Air China's Cathay Pacific and China Southern Airlines Group, and China Southern Airlines' Xiamen Airlines all had a positive impact on the performance of listed airlines.

However, for airlines, 2024 may be a new opportunity to “return blood”, as the so-called “dark, flower, and new village.”

At the 2024 National Civil Aviation Work Conference, the Civil Aviation Administration stated that it will strive to complete passenger traffic of 690 million passengers in 2024, an increase of 11% over the previous year and an increase of 4.6% over 2019; the number of passengers on domestic routes, international and regional routes in China is expected to be +7.7% and -17%, respectively, compared with 2019. On this basis, the Civil Aviation Administration has also set an overall profit target for the industry for 2024.

Numbers are the best litmus test. During the 2024 Spring Festival travel season, civil aviation data reached a record high, and it was regarded by the outside world as “the most popular civil aviation Spring Festival travel season.”

Specifically, during the 2024 Spring Festival travel season (January 26 to March 5), the country's civil aviation carried a total of 83.45 million passengers, an average of more than 2,086 million passengers per day, an increase of 51.1% over the 2023 Spring Festival travel season, an increase of 14.5% over 2019, and a record high of passenger traffic; 683,000 flights were guaranteed, an average daily guarantee of more than 17,000 flights, an increase of 27.4% over the 2023 Spring Festival travel season, an increase of 2.7% over 2019.

Thanks to the recovery of the above data, many brokerage agencies gave positive ratings to the listed airlines' performance “return to blood” in 2024.

Among them, Zheshang Securities believes that the positive year-on-year increase in airline performance in 2024 is a probable event. International flights will continue to return to a definitive trend in 2024. On the one hand, it will effectively increase the daily utilization rate of aircraft and dilute fixed costs; on the other hand, a large number of wide-body aircraft piled up in the domestic market will return to the international market, and supply pressure in the domestic market will ease markedly. Furthermore, the oil price and exchange rate environment is expected to improve year-on-year in 2024, and the pressure on the airline's cost side may ease, which is beneficial to the release of airline performance.

Guotai Junan also said that the Spring Festival travel season is expected to catalyze optimistic expectations and maintain the airline holdings increase rating. Demand for aviation recovered rapidly in 2023, and the fare center has risen. China's aviation demand is resilient and there is huge room for long-term growth; airspace bottlenecks continue for a long time, and airlines rationally plan to slow down capacity. The country is actively promoting an increase in international classes. When supply and demand resume, the central increase in ticket prices will continue, and an increase in the profit center can be expected. Market expectations may already be too pessimistic, and the 2024 Spring Festival travel performance is expected to catalyze optimistic expectations.

In summary, the domestic aviation recovery logic is not just a short logic of “mismatch between supply and demand after the epidemic and a big profit year”, but a “aviation supercycle” long logic. From a medium- to long-term perspective, China's aviation consumption penetration is still extremely low, and there is considerable potential for growth in endogenous demand for civil aviation in the medium to long term. This is clearly a major determining factor for the performance of listed airlines. Furthermore, the overall increase in customer reception has also contributed to the expected profit margin of the industry as a whole.

Therefore, if you look at the timeline for a long time, the “return to blood” is already close for aviation companies.