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2026-05-14 13:06:20 Although the energy shock has worsened the fundamentals of Chinese airlines, the negatives are likely already priced in, Morgan Stanley said in a report. The broker estimated that current airfare hikes are insufficient to cover rising costs, indicating short-term margin pressure, while demand is also affected by higher ticket prices. Morgan Stanley believed fuel prices will be the key variable affecting the industry outlook over the next 12-18 months. Under its base case, aviation fuel prices are expected to normalize to USD100-110/ bbl by end-2026, with the upcycle of China’s aviation sector postponed and only resuming in 2027. The broker maintained a constructive view on China’s aviation industry for four main reasons: (1) inbound tourism will continue to support asset utilization of Chinese airlines; (2) with ample aviation fuel supply, China can attract more international transit passengers; (3) capacity supply constraints will persist and may even aggravate; and (4) most negative factors are already priced in, while aviation fuel prices are undergoing adjustment. On individual stocks, Morgan Stanley lowered the TP on AIR CHINA (00753.HK) H shares from HKD10 to HKD7.7, a 23% reduction, while maintaining an Overweight rating. It also cut the TP on AIR CHINA (601111.SH) A shares from RMB11.1 to RMB8.3 and removed the stock from its top picks list due to uncertainty over fuel price prospects. Morgan Stanley expected AIR CHINA to record a loss of RMB4.7 billion in 2026 and return to a profit of RMB4.5 billion in 2027. Morgan Stanley also reduced the TP on CHINA EAST AIR (00670.HK) H shares from HKD8.1 to HKD5.9, representing a 27.2% cut, while maintaining an Overweight rating. The TP on CEA (600115.SH) A shares was lowered from RMB8.1 to RMB5.8. The broker said CHINA EAST AIR is actively expanding international capacity, which will help consolidate Shanghai’s position as an international aviation hub, and forecast a loss of RMB7 billion in 2026. In addition, the TP on CHINA SOUTH AIR (01055.HK) H shares was cut from HKD8.5 to HKD5.9, a 30.6% reduction, with an Overweight rating maintained. The TP on SOUTHERN AIRLINES (600029.SH) A shares was lowered from RMB9.71 to RMB6.7. Morgan Stanley noted that upside in the cargo cycle may be limited amid global trade tensions, and it expected CHINA SOUTH AIR to post a loss of RMB5.9 billion in 2026. Morgan Stanley forecast a meeting between Chinese President Xi Jinping and US President Donald Trump to serve as a catalyst. An increase in direct China-US flights would have a mildly positive impact on Chinese airlines, as current flight capacity is only about 30% of pre-pandemic levels and lags demand recovery. On the other hand, potential aircraft orders from Boeing by Chinese airlines would be slightly negative, as capex burdens could weigh on valuations of the three major airlines. The broker expected no major adjustments to Chinese airlines’ capacity expansion plans before 2028. ~ AASTOCKS Financial News Website: www.aastocks.com | |