CITIC Securities Aviation's 2026 Investment Strategy: Focus on Airlines' Profit Inflection Points and Reconstruct the Prosperity Cycle to Fulfill or Reach

The Zhitong Finance App learned that CITIC Securities released a research report saying that the release of civil aviation fleet production capacity is constrained by factors such as low introduction of new aircraft, engine maintenance, and spare parts. The peak season fleet capacity utilization rate is getting closer to the limit. Recently, public business demand continues to recover. It is expected that the policy side will further stimulate private travel in 2026, and once again emphasizes “focusing on the inflection point of airline profits.” In the third quarter, Air's international passenger kilometer revenue was comparable to that of the US, changing the weak level of international flight revenue since 2015. The strategy of “flying far, flying internationally, and flying to emerging markets” further diluted the cost of withholding fuel per unit against the backdrop of low oil prices and a weak recovery in domestic demand. In 2025, Dahang is expected to achieve the first profit correction after the epidemic, becoming the starting point of the profit release cycle, and continues to be optimistic about the airline's performance release in the next two years.

CITIC Securities's main views are as follows:

Follow the chart: Looking at quarterly reports to uncover signs of marginal changes, the continued recovery in short-term public business demand is expected to resonate with a moderate appreciation of the exchange rate.

One characteristic is that, according to the sample airline announcement, the RRPK (passenger kilometer revenue) of domestic airlines is comparable to that of US internal flights, and the capacity is skewed towards international long-haul routes. Against the backdrop of low fuel prices and weak recovery in domestic demand, the strategy of increasing aircraft utilization and diluting unit costs through the strategy of increasing capacity investment in international long-haul routes, while increasing the proportion of transit passengers contributing to the revenue side or is superior to the business strategy of simply limiting domestic passenger mileage.

Second, easing the pressure on aviation fuel costs is still an important factor in releasing profits. Differences in fleet utilization due to engine maintenance scales and phased operating strategies drive the differentiation of unit fuel withholding costs. At the same time, the effects of detailed management and optimization of financial expenses by airlines are evident through various means.

Third, explore demand in multiple dimensions. According to the three quarterly reports of various airlines, the passenger occupancy rate of off-season airlines is at a high level of 85.3% to 93.2%. Focus on the “anti-internal volume” marginal variables of civil aviation driving the transmission of high passenger occupancy rates to ticket price flexibility. The continued recovery in short-term commercial demand is expected to resonate with the moderate appreciation of the exchange rate, and the profit side losses of 4Q25 airlines are expected to narrow sharply.

Accelerated recovery: PPI second-level guidance is looking at aviation demand. The recovery route favors airlines, and the short-term impact on the Japanese line brings another opportunity for layout.

Reviewing history, expectations of economic stabilization have driven the arrival of a year-on-year inflection point in PPI. Demand brought about by economic expansion has stimulated increased public and business travel and more active private demand. Take 2010 as an example. According to China Southern Airlines's announcement, China Southern Airlines RPK maintained a 20% to 29% year-on-year growth rate from February to September. The inflection point of this round of aviation demand was basically the same as the PPI second-order transition timing point, and the recovery in aviation demand lasted slightly longer than the PPI repair period for 4 months. The contraction in PPI decline in October 2025 and the year-on-year correction of CPI is expected to be the starting point for accelerated aviation demand-side recovery. It is expected that fiscal policy expansion will improve residents' consumption capacity, income distribution adjustments will increase marginal consumption tendencies, and thereby catalyze travel demand. According to the 25/26 winter and spring season flight plan, judging from the proportion of international flights between China and Japan during the winter and spring season, China Eastern Airlines/Air China/China Southern Airlines each accounted for 22.6% /22.3%/13.7%, and Chunqiu and Jixiang accounted for more than 50%. The short-term impact needs to be further observed, focusing on the likely spillover direction of passenger flow, or mainly for Southeast Asia routes and domestic routes in the Northeast region.

The off-season volume and price data strengthens the trend. It is expected that the compound growth gap between supply and demand will correct and continue to expand in the next two years (RPK-ASK), and the aviation restructuring boom period may be realized.

The impact of short-term incidental factors has passed. According to flight manager data, public business demand has continued to improve since mid-September. Compared with the same period in May, the decline was 2.3 ppts to 3.7% narrower than the same period in 2024, and the decline in October/November was also lower than the same period in 2024. Public and commercial demand continues to recover, and subsequent policies may further stimulate private travel. At the same time, airline capacity is skewed towards international long-haul routes, further optimizing the domestic flight supply structure, and anticipating marginal changes in “anti-internal volume”. Since 2023, against the backdrop of weak recovery in demand, redundant capacity in civil aviation stocks due to historical reasons has become an important factor putting pressure on domestic flight fares, but according to ASK and RPK data disclosed by various airlines, the cumulative growth rate for 2015-24 (RPK-ASK) changed to 0.3% for the first time. Currently, it is constrained by low aircraft introduction, engine maintenance, and spare parts. Under current conditions, the utilization rate of aircraft production capacity is getting closer to the limit, and once again emphasizes “focusing on the inflection point of airline profits.” Combined with the predictions for RPK and ASK for the five airlines listed in 2025-2027, it is estimated that compared with 2015, the 2025-2027 (demand-supply) composite growth rate difference was 0.5/ 0.6/ 0.7 pcts, respectively, and the aviation restructuring boom period may have arrived.

Strong supply-side constraints continue to be tightened as a necessary condition for the formation of the aviation cycle. It is difficult for new orders to affect the introduction of the “15th Five-Year Plan” aircraft. It is estimated that the 2025 to 2027 fleet size CAGR or 2.1%-3.6% under different operating conditions.

According to the airline driver team introduction plan, it is estimated that the nominal capacity CAGR of the six airlines listed from 2024 to 2027 is about 4.6%. Considering that the actual net increase in the number of aircraft of the six airlines launched in 2024 is only 48.9%/44.9%/58.2% of the planned number, respectively. The factors affecting capacity delivery have not been fully mitigated, and it is expected that the nominal capacity CAGR will still be heavily discounted. If the operating conditions are divided, assuming that the actual delivery volume of the total fleet between 2025 and 2027 accounts for 45%/50%/60%/75% of the total current plan, the compound growth rate corresponding to the size of the listed Six Airlines driver fleet is 2.1%/2.4%/2.9%/3.6%, respectively. Assuming that other models complete the 60% delivery target and the C919 achieve the 20% delivery target, the CAGR of the Six Airlines driver fleet launched in 2025-2027 is about 2.1%. Furthermore, high rental costs for leased aircraft, demand for replacement of old aircraft, and PW1100G engine maintenance have further limited the effective capacity growth of airline stocks.

Investment Strategy:

The continued recovery in short-term commercial demand is expected to resonate with the moderate appreciation of the exchange rate, and the profit side losses of 4Q25 airlines are expected to narrow sharply. By increasing capacity in international long-haul routes, increasing aircraft utilization and diluting unit costs. At the same time, by increasing the proportion of transit passengers and increasing seat revenue contributions, or a business strategy superior to a business strategy that is simply limited to the revenue side of domestic passenger kilometers, Air is tilting its capacity towards international long-haul routes by building hubs and networks. The second-level PPI steering is looking at aviation demand. The recovery route favors airlines, and the short-term impact on the Japanese line brings another opportunity for layout.

Risk factors:

Travel demand fell short of expectations; aircraft introduction exceeded expectations; the impact of geological events exceeded expectations; oil exchange disturbances exceeded expectations.