Title: Domestic Aviation Market Recovers as Summer Travel Demand Increases
Introduction:
China’s civil aviation market is experiencing a steady recovery as travel demand picks up with the summer travel season in full swing. The Civil Aviation Administration of China predicts a surge in passenger travel, particularly for vacationing and visiting relatives and friends. Domestic passenger traffic has already surpassed pre-pandemic levels, indicating a positive trend in the market’s recovery.
Strong Passenger Traffic in the Domestic Market:
Since the beginning of 2023, China’s civil aviation market has shown rapid recovery. During the Spring Festival travel season, passenger flow reached a record high of 1.75 million per day. The trend continued during the May Day holidays, with an average daily passenger flow of 1.75 million, representing a 13% year-on-year increase. In the 22nd week of 2023, domestic passenger traffic exceeded the levels seen in 2019 for eight consecutive weeks.
Increasing Airfare Levels:
Domestic airfare prices have maintained a year-on-year growth rate compared to the same period in 2019. Prices during peak seasons such as Spring Festival and May Day have significantly exceeded pre-pandemic levels. Despite three consecutive reductions in fuel surcharges this year, the fare level has not been significantly affected. The year-to-date domestic airfare level is 881 yuan, a 12% increase compared to the previous year.
Improving International Market:
With the gradual opening of entry and exit policies, cross-border passenger flow has increased but still lags behind pre-pandemic levels. As of early June 2023, international flights have recovered to almost 35% of the 2019 volume. Flights to Hong Kong, Macao, and Taiwan have seen a recovery rate of nearly 50%. However, the recovery of the North American market has been slower due to air traffic rights negotiations, resulting in a year-on-year decline of 94% in inbound flights and a significant increase in one-way prices.
Peak Season Ticket Prices:
During the Spring Festival travel season, the demand for travel remained below pre-pandemic levels, leading to more flexible ticket pricing. The average ticket price during the 40-day period was about 973 yuan, an 8.2% increase compared to the previous year. However, during the May 1st holidays, increased price resilience was observed, with a record-breaking number of domestic travelers in a single day. The average ticket price during this period was 1056 yuan, a 29% increase compared to 2019.
Positive Outlook for Domestic and International Aviation:
The global aviation industry is projected to witness continued growth in 2023. Domestic aviation recovery has outpaced international recovery, with China leading the Asia-Pacific region. The upcoming summer travel season is expected to maintain strong travel demand and high ticket price growth. Additionally, with the recovery of international routes, Q4 may experience a peak in international passenger traffic, promising positive revenue prospects for airlines.
Investment Logic:
The company has strategically deployed dual brands (full-service and low-cost) to fully compete in China’s civil aviation market. With the alleviation of unfavorable external factors and the release of the public’s willingness to travel, the company’s main business has significantly improved in the first half of 2023. Leveraging its high proportion of domestic transportation capacity and concentration of international routes in Japan and Thailand, the company is leading the industry in business restoration progress.
In conclusion, the recovery of China’s domestic aviation market and the increasing demand for travel offer promising prospects for airlines. As the summer travel season unfolds, airlines are expected to benefit from strong ticket prices and sustained travel demand.