"Big Banks" JP Morgan: The sharp rise in oil prices offsets the upward cycle of China's aviation industry, "reduce holdings" in CEA and CSN

JP Morgan's research report indicates that Chinese airlines are entering the strongest supply-demand landscape in over a decade, with aircraft delivery shortages limiting capacity growth to around 3% to 4% from 2026 to 2027, while the industry's passenger load factor reached a historical high in the fourth quarter of last year.

However, the war between Iran and the United States has become a dominant short-term risk, with Brent crude oil surging about 50% to $115 per barrel, and Chinese airlines have not hedged at all, with fuel accounting for about one-third of operating costs. The bank's base case scenario forecasts oil prices at $80 per barrel from 2026 to 2027, which would result in the three major mainland airlines recording losses or being close to breakeven in 2026.

The bank notes that industry stock prices have adjusted about 30% due to geopolitical tensions, and it maintains a cautious outlook until the oil price outlook becomes clearer; it raises the rating for Air China (00753.HK) from "Underweight" to "Neutral," with a target price increased from HKD 4.5 to HKD 4.8. The rating for China Eastern Airlines (00670.HK) is downgraded from "Neutral" to "Underweight," with the target price for China Eastern H shares lowered from HKD 3 to HKD 2.7; the rating for China Eastern Airlines (600115.SH) is downgraded from "Overweight" to "Underweight," with the target price for A shares lowered from RMB 5 to RMB 3.3. China Southern Airlines (01055.HK) maintains an "Underweight" rating, with the target price for H shares lowered from HKD 2.9 to HKD 2.8; the target price for China Southern Airlines (600029.SH) A shares is lowered from RMB 4.8 to RMB 4