Civil Aviation Administration of China (CAAC) released the flight schedule for the winter season of 2018 recently in an attempt to increase airports’ capacity and on-time departure rate. The move will help improve Chinese carriers’ efficiency and on-time rates which are highly correlated to their profitability. On the other hand, airlines are gradually gaining greater independence on setting flight fares amid the ongoing airfare pricing reformation. Also, Chinese carriers will reintroduce fuel surcharge from 18 June 2018, along with the short-term bearish pressure on oil price, which could lower their operating cost. According to CAAC’s data, mainland passenger traffic as of August this year reached 407 million, an increase of 12.1% over previous year. We expect the mainland passenger traffic will continue to surge rapidly in the next 20 years amid the growth of China’s economy coupled with the country’s fast-growing middle class group. Although the Chinese airlines’ profitability has been suffering from the negative macro factors lately, China aviation sector will continue to ride the reform wave. Given that most Chinese airlines’ third quarter performance matched market consensus, investment opportunities may arise for investors.

Citi research

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