October traffic results for the big three Chinese airlines show a robust recovery, with passenger traffic up to 77% of 2019's level with a 69% load factor in October. While, their domestic capacity recovered to 94% of 2019's level, international traffic remained lacklustre.
In a research note, Parash Jain, Head of Shipping & Ports & Asia Transport at HSBC, commented that the bank expects the domestic market to ramp up swiftly once the COVID-19 situation is controlled: “We are optimistic that pent-up demand for travel will quickly bounce back once the pandemic subsides, supporting the recovery of the domestic market. Despite sporadic outbreaks of COVID-19 across mainland China in recent months, domestic RPK was quick to rebound following each outbreak, as evidenced by the sequential recovery in September (+73% m-o-m in RPK) and October (+11% m-o-m). Every subsequent small COVID-19 outbreak in mainland China has had a gradually smaller impact on overall travel sentiment, as society in general has moved towards dynamic COVID-19 controls.”
HSBC also notes that, given their well-capitalized balance sheets, solid operating cash flows supported by the strong domestic market, and weakening positioning of peers, particularly on international routes, the Chinese Big-3 airlines will “emerge stronger post the pandemic, in our view”. But the research note is cautious on near-term performance since the Big-3 airlines do not expect mainland China's borders to be opened before the Beijing Winter Olympic games are concluded in March 2022, and because there are ongoing COVID-19 cases in mainland China. “Our 4Q21 loss estimate for the Big-3 is 5% higher than consensus, and we expect further downside risk to consensus 4Q21 loss estimates.”