Chinese airlines to deliver strong 2H17 results as Dec traffic lifts growth

Air China (753:HK) Fair value: HK$11.50
Air China (753:HK) Rating: Outperform

China Eastern Airlines (670:HK) Fair value: HK$7.00
China Eastern Airlines (670:HK) Rating: Outperform

China Southern Airlines (1055:HK) Fair value: HK$9.50
China Southern Airlines (1055:HK) Rating: Outperform

16th January 2018, China – The Big 3 Chinese airlines just reported their December 2017 operating statistics. In summary, their better-than-expected passenger traffic growth in December has lifted the Chinese airlines’ full year 2017 traffic growth rate, supporting our view that they will deliver strong 2H17 financial results in late March 2018.

CHINA SOUTHERN AIRLINES’ PASSENGER TRAFFIC GROWTH WAS THE STRONGEST IN DECEMBER 2017

China Southern Airlines’ (1055:HK) passenger traffic surged 14% y/y in December 2017, ahead of Air China’s (753:HK) and China Eastern Airlines’ (670:HK) 11% and 10% growth.

Chart: Chinese airlines Dec 2017 passenger traffic growth

Chart: Chinese airlines Dec 2017 passenger traffic growth

MORE SEATS WERE FILLED IN DECEMBER 2017

The stronger than expected travel demand lifted China Southern Airlines’ overall passenger load factor by 2ppts y/y to 82% and Air China and China Eastern Airlines’ passenger load factors by 1ppt y/y to 80% and 79% respectively in December 2017.

STRONG TRAVEL DEMAND IN DECEMBER LIFTS THE CHINESE AIRLINES’ FULL YEAR GROWTH RATE

The strong operating performance in December has lifted the Big 3 Chinese airlines’ full year passenger traffic growth rate to 12%, 9% and 7% for China Southern Airlines, China Eastern Airlines and Air China in 2017. Their overall passenger load factors were in the 81-82% range.

Domestic flights were effectively full, with passenger load factors averaging a record high of 83% for the three carriers in 2017, increasing their pricing power.

On international flights, China Southern Airlines managed to fill more seats (with average passenger load factor of 82%) compared Air China and China Eastern Airlines’ 78% load factor.

However, China Southern Airlines’ regional flights had lower load factors compared to Air China and China Eastern Airlines’.

Chart: Chinese airlines passenger traffic growth (Jan-Dec 2017)

Chart: Chinese airlines passenger traffic growth (Jan-Dec 2017)

Chart: Chinese airlines passenger load factors (Jan-Dec 2017)

Chart: Chinese airlines passenger load factors (Jan-Dec 2017)

AIR CHINA HAD THE HIGHEST CARGO LOAD FACTOR IN 2017 AMONG THE CARRIERS

Air China’s cargo load factor improved 2ppts y/y to 57% in 2017, driven by its 8% growth in cargo traffic. China Southern Airlines’ cargo traffic grew more rapidly at 13% y/y which raised its cargo load factor by 1ppt to 54%. China Eastern Airlines’ cargo load factor weakened 3ppts y/y to 36% but note that China Eastern Airlines had disposed its entire equity interest in Eastern Logistics with effect from 8th February 2017 so its cargo performance refers only to its bellyhold cargo on passenger aircraft following the disposal date.

Chart: Chinese airlines cargo traffic growth and load factors (Jan-Dec 2017)

Chart: Chinese airlines cargo traffic growth and load factors (Jan-Dec 2017)

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Related Reports: 

Air China Initiation Research Report 2017: Top choice among the Chinese airlines

China Eastern Airlines Initiation Research Report 2017: Rapid improvement but aggressive expansion risk abounds

China Southern Airlines Initiation Research Report 2017 – Strong domestic drivers tempered by funding needs

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