Zhongtai Securities: The supply constraints in the aviation sector remain strong in the new flight season, seizing new opportunities for pattern optimization

According to the Zhitong Finance APP, Zhongtai Securities released a research report stating that the total flight hours of domestic airlines in the 2025 winter-spring season show a downward trend both year-on-year and month-on-month, and controlling total volume and adjusting structure may drive ticket prices. The firm continues to be optimistic about investment opportunities in the aviation sector under low expectations. In the context of a definite slowdown in fleet growth and no significant increase in first-tier time resources, the firm believes that supply constraints in aviation remain strong. High passenger load factors combined with industry anti-involution initiatives are expected to drive a recovery in ticket prices, and it is recommended to accumulate positions on dips.

Key points from Zhongtai Securities are as follows:

Seasonal Overview: Total volume declines year-on-year and month-on-month, with clear intentions to control volume. The total flight hours of domestic airlines in the 2025 winter-spring season show a downward trend (down 2% year-on-year, down 3% month-on-month), an increase of 15% compared to the 2019 winter-spring season.

International Routes: Limited increments, with significant year-on-year growth in Canada in North America, and advantages for China Eastern Airlines in Japan, South Korea, and Thailand. The international flight hours (including flights originating from/to China) increased by 2% compared to the 2024 winter-spring season, reaching 75% of the 2019 winter-spring season; the regional flight hours of domestic airlines decreased by 12% compared to the 2024 winter-spring season, reaching 83% of the 2019 winter-spring season.

The planned flight hours of domestic airlines in Asia (including regions, excluding flights originating from/to China)/Europe/Oceania/Middle East/North America account for 83%/9%/3%/2% of the total international (including regions) flight hours, respectively. The planned flight hours in Asia/Europe/Oceania/Middle East/North America/Africa have recovered to 79%/126%/81%/171%/26%/267% of the same period in 2019, respectively. The weekly planned flight hours in North America increased by 46 year-on-year, with a growth rate of 48.4% (mainly from Canada). Among the top 20 destinations, the planned flight hours of domestic airlines in Hong Kong, Malaysia, Singapore, Indonesia, Laos, Russia, the UK, Italy, the UAE, and Spain have recovered beyond 2019 levels. China Eastern Airlines has planned flight hours of 542/316/368 per week in Japan/Thailand/South Korea, ranking first among domestic airlines.

Domestic Routes: The structure of domestic routes is leaning towards core cities, with significant increments in fifth-tier cities benefiting from subsidy policies. ① Overall flight hours are declining, with significant increments only in fifth-tier cities. The total flight hours across the industry decreased by 2% compared to the 2024 winter-spring season, but increased by 21% compared to the 2019 winter-spring season. By city type, only the planned flight hours in fifth-tier cities increased by 4.6%, while the planned flight hours in first-tier cities remained relatively stable (-0.4%), and planned flight hours in other city types decreased year-on-year (down 2%-7%).

② The Civil Aviation Administration has limited the release of flight hours in first-tier cities. Given the scarcity of time resources in first-tier cities, the firm believes that airlines are unlikely to voluntarily give up the first-tier city flight hours they have already obtained, so the lack of growth in total flight hours in first-tier cities is likely due to the Civil Aviation Administration not conducting large-scale releases at first-tier airports.

③ Airlines may have proactively increased planned flight hours in fifth-tier cities. The firm believes that, in the context of slowing capacity growth in the future, airlines may have proactively reduced flight hours in lower-tier cities that are not performing well and where subsidies are insufficient, leading to a 7.4% decrease in planned flight hours in fourth-tier cities The incremental growth in fifth-tier cities mainly comes from the Xinjiang Autonomous Region (including Altay, Hami, Hotan, Kashgar, etc.). The bank speculates that the subsidy policies in Xinjiang have driven airlines to increase flights within the region, while the strong tourism demand in Xinjiang has prompted airlines to add flights from Xinjiang to other provinces and cities.

④ The route structure is leaning towards core cities. The reduction in flight slots in third and fourth-tier cities has led to an increase in the proportion of flights in the first-tier inter-city flight plan to 3.84%, the highest in six consecutive flight seasons. The proportion of inter-city routes in core markets has increased to 54.13%, up 0.17 percentage points year-on-year and 1.30 percentage points quarter-on-quarter.

Competitive Landscape: Airline strategies are diverging, and the domestic competitive landscape is expected to optimize. ① The three major airlines and Juneyao Airlines (603885.SH) are reducing investment in lower-tier markets, which helps improve their revenue quality. In the winter-spring flight season of 2025, the domestic planned flight slots of the three major airlines and Juneyao in lower-tier markets (cities at the third tier and below) are expected to decrease year-on-year (Air China/Eastern Airlines/Southern Airlines/Juneyao: -3%/-5%/-4%/-2%). Air China and Eastern Airlines have reduced flight slots in lower-tier markets for three consecutive winter-spring flight seasons. In terms of slot structure, the proportion of flight slots in core cities for each airline is: Air China 82% / Eastern Airlines 80% / Juneyao 80% / Southern Airlines 79% / Spring Airlines 74% / Hainan Airlines 65% / China Express 26%; the proportion of planned flights on inter-city routes in core cities for each airline is: Air China 67% / Eastern Airlines 62% / Juneyao 62% / Southern Airlines 61% / Spring Airlines 50% / Hainan Airlines 41% / China Express 4%. The improvement in Eastern Airlines' slot structure is the most significant, with the proportion of core market flight slots in its total slots increasing by 5.4 percentage points compared to the winter-spring flight season of 2019, and the proportion of planned flights on inter-city routes in core markets increasing by 8.56 percentage points compared to the winter-spring flight season of 2019.

② China Express Airlines (002928.SZ) is increasing investment in lower-tier markets and will continue to benefit from capacity recovery and favorable subsidy policies. In the winter-spring flight season of 2025, China Express Airlines plans to increase its flight slots by 5.2% year-on-year, with the main growth coming from second-tier cities (17.04%, with Lanzhou increasing by 300%) and fifth-tier cities (+15.76%, mainly from Xinjiang and Gansu). At the same time, China Express remains the airline with the most routes connecting airports within Xinjiang (planned 936 flights/week).

③ Spring Airlines (601021.SH) is mainly increasing investment in second to fourth-tier cities, county-level cities, or cities below the fifth tier, while Hainan Airlines Group is mainly increasing investment in first, second, and fifth-tier cities. Both airlines may benefit from the dual advantages of demand and subsidies. In the winter-spring flight season of 2025, Spring Airlines' planned flight slots in new first-tier/second-tier/third-tier/fourth-tier/fifth-tier/county-level cities or other cities are expected to grow by 6.27%/13.09%/16.63%/27.59%/8.63%/31.46% year-on-year. Hainan Airlines Group's flight slots in first/second/fifth-tier cities are expected to grow by 0.42%/2.85%/7.79% year-on-year. In terms of route structure, the proportion of planned flights between second and third-tier cities for Spring Airlines, and between first-tier and second/third-tier cities for Hainan Airlines, as well as the proportion of planned flights between some high-tier and low-tier cities for both airlines, has increased (or stabilized). Demand in high-tier cities is good, and subsidy policies in low-tier cities are favorable, allowing both airlines to enjoy the dual benefits of demand and subsidies Risk Warning: Oil price risk, exchange rate risk, risk of outdated information in research reports