Dongxing Securities: August airport supply growth is low, with a month-on-month improvement in passenger load factor

According to the Zhitong Finance APP, Dongxing Securities released a research report stating that in August, the domestic route capacity of listed companies increased by approximately 1.7% year-on-year and by about 0.8% compared to July, with the growth rate of capacity investment declining to a low level. In terms of passenger load factor, the overall passenger load factor of listed companies in August improved by about 0.9 percentage points compared to the same period last year and increased by 3.3 percentage points compared to July, with a noticeable improvement in the load factor of airlines compared to the previous month. On the industry policy front, the release of the "Self-Discipline Convention for Air Passenger Transport" by the China Air Transport Association in August laid the foundation for the formation of an anti-involution environment in the industry. The supply control and recovery of passenger load factor in August also indicate that the convention has a certain effect in curbing market chaos, standardizing operational behavior, and boosting revenue levels.

The main points of Dongxing Securities are as follows:

Domestic Routes: Low Growth on the Supply Side, Improvement in Load Factor

In August, the domestic route capacity of listed companies increased by approximately 1.7% year-on-year and by about 0.8% compared to July, with the growth rate of capacity investment declining to a low level. The capacity investment growth of the three major airlines in August was all below 1% compared to the previous month, essentially maintaining the level of July; year-on-year, the capacity investment growth of the three major airlines in August declined compared to July. The load factor in July was not ideal, combined with the broader context of anti-involution in the industry, leading airlines to be generally cautious about capacity investment in August.

In terms of load factor, the overall load factor of listed companies in August improved by about 0.9 percentage points compared to the same period last year and increased by 3.3 percentage points compared to July, with a noticeable improvement in the load factor of airlines compared to the previous month. After the load factor in July fell below expectations, airlines made timely adjustments, and with the support of the peak season, the load factor in August returned to its appropriate level. From the trend of load factor, the airlines' previous priority of pursuing high load factors has loosened somewhat in the first half of the year. Given that demand recovery is below expectations, using price to gain volume is unlikely to bring long-term benefits, and airlines are beginning to rebalance the relationship between quantity and price, placing greater importance on profitability, potentially lowering the priority of increasing market share.

Considering factors such as daily aircraft utilization, the current constraints on the supply side for airlines are already strong. The rebalancing of supply and demand in the industry, in addition to continuing to maintain constraints on supply, will depend more on whether the demand side shows signs of recovery. It is expected that airlines will maintain a cautious attitude towards capacity investment in domestic routes going forward, and the broader anti-involution environment will continue to strengthen constraints on the supply side, which will help alleviate operational pressures on airlines.

International Routes: Significant Month-on-Month Improvement in Load Factor for Shanghai-Based Airlines

On the international route front, in August, the capacity investment of listed airlines on international routes increased by approximately 14.6% year-on-year and by about 1.0% compared to July. In terms of load factor, the load factor in August was basically flat compared to last year and increased by about 2.8 percentage points compared to July, maintaining overall stability.

In August, the international load factors of Spring Airlines and China Eastern Airlines showed significant month-on-month increases, both exceeding 4%, with all three being Shanghai-based airlines, reflecting relatively strong peak season demand in the Shanghai area this year. This is also somewhat reflected in the growth rate of international passenger throughput at listed airports in August, with Shanghai Airport's throughput growth rate exceeding that of Beijing and Guangzhou-Shenzhen.

Changes in Industry Policy and Investment Recommendations: Initial Effects of Anti-Involution, but Persistence is Key The release of the "Self-Discipline Convention for Air Passenger Transport" by the China Air Transport Association in August laid the foundation for the formation of an anti-involution environment in the industry. The supply control and the rebound in passenger load factor in August also indicate that the convention has a certain effect in curbing market chaos, standardizing operational behavior, and boosting revenue levels.

Anti-involution is a long-term project that requires persistence. The formation and maintenance of the anti-involution environment is expected to accelerate the process of industry rebalancing, which will greatly benefit the overall improvement of the industry's profitability. From the perspective of profit elasticity, large airlines will benefit more significantly, and it is recommended to pay close attention to them.

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