With the restoration of international routes easing overcapacity in domestic markets, HSBC predicts 2024 to be a “year of record profits” for China’s big three airlines (Air China, China Eastern Airlines and China Southern Airlines) in its latest report.
The report stated: “we now model international capacity (ASK) for the Big Three to recover to 99% of the 2019 level in 2024e vs just 44% in 2023e. Our combined 2024e profit forecast of RMB20.4bn [$2.8 billion] for the Big Three is 14% above consensus.”
The Civil Aviation Administration of China (CAAC) expects the number of Chinese passengers to reach a record 80 million during the Lunar New Year (February 10, 2024) travel rush, a 40-day period between January 26 and March 5. This forecast would see passenger numbers rise 9.8% more than 2019.
Furthermore, the CAAC expects international traffic to return to 80% of 2019’s levels by the end of 2024, said JP Morgan head of Hong Kong equity research and head of Asia infrastructure, industrial and transport equity research Karen Li in JP Morgan’s Valuation Dashboard report for January 2024.
Li added: “China’s domestic flight activities has been outpaced 2019’s level while international flight activities lag behind.”
The HSBC report found that the big three’s number of international flights recovered to 73-76% of 2019 levels in the first week of January 2024. However, while US-China flights are falling behind (with recovery reaching only 18% of pre-pandemic levels), some factors are expected to help boost the numbers. The report stated: “we expect the recovery in international capacity to accelerate in 2024, propelled by the easing of external bottlenecks such as visa policies and air rights negotiations.” China and the US are beginning to ease on direct flight restrictions that emerged during the pandemic.
The report added: “the Big Three can ramp up international flights quickly, as they have had almost no layoffs in the past four years. This ramp up should dilute unit cost, tighten capacity and airfares on domestic routes, and boost earnings for the Big Three.”
Li said: “Tightening demand-supply dynamics should lend support to passenger yields and support an earnings rebound during FY24~26E.”
In December, it was announced that Chinese passport holders could travel visa-exempt to Malaysia. Meanwhile, Thailand and China will permanently waive visas for tourists from the opposite party from March 2024, further facilitating international travel for Chinese nationals.