Chinese airlines are likely to recover faster than many of their peers as domestic travel within China has resumed at a quicker pace compared with other countries, according to several investors, CNBC writes in the article Chinese airlines could recover from coronavirus slump more quickly than their peers. The aviation sector has incurred significant losses after measures to slow the spread of the coronavirus — including border closures and restrictions on movement — halted much of global travel.
As a result, many airlines needed large amounts of financial support to stay afloat. China, the first country hit by the coronavirus, has in the last few months eased some restrictions allowing people to travel domestically as its outbreak stabilized.
“For now, Chinese holidaymakers are opting for shorter distance leisure trips by car or train, and forward bookings are being made with a much shorter booking window (one week),” Eastspring Investments said in a report.
“Nevertheless, while the upturn in Chinese air travel is lagging road travel, Chinese airlines are still ahead in the recovery compared to their American and European counterparts, as they benefit from the recovery in domestic travel,” it added.
The asset manager noted that most Chinese airlines derive a majority of their revenues through domestic travel. That means the airlines “are likely to be more resilient than other regional airlines for the rest of the year,” it said.
Investment ideas
Signs of recovery in China’s air passenger traffic led HSBC to maintain its “buy” rating on the Hong Kong-listed shares of Air China, China Eastern Airlines and China Southern Airlines.
Like many airlines globally, shares of the three carriers have plunged this year as they reported substantial losses in the first half of 2020. But those losses could narrow in the coming months, with passenger growth likely to help support ticket prices, HSBC said in a Monday note.
But improvements in domestic travel may not benefit airports, which rely more on international traffic for profits, added the bank.
“We continue to expect domestic passenger traffic to recover sooner than international traffic, which is favourable for mainland Chinese airlines as they generate most profit on domestic routes,” it said. “On the other hand, airports generate most of their profit from international traffic, given aeronautical charges (passenger service charges and landing and parking charges) are usually higher for international traffic than for domestic traffic, and international passenger mainly drive duty free revenue at airports.”
