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2026-06-11 15:52:57 High-frequency data confirmed a clear deceleration in domestic aviation demand in China, with aircraft utilization rates dropping, HSBC Global Investment Research said in its report. Given limited ability to pass through fuel costs, the broker expected China's three major SOE airlines to record substantial losses in 2Q. The broker assumed the market reaction yesterday (10th) to news of a convertible bond (CB) issuance of CATHAY PAC AIR (00293.HK), a subsidiary of SWIRE PACIFIC A (00019.HK), appeared overdone. CATHAY PAC AIR reported that available seat kilometers (ASKs) in April mounted 15% YoY, with passenger load factor (LF) rising 1.8 ppts, and guided for capacity growth of 10% in 2026. On the cargo side, the Hong Kong outbound Baltic Air Freight Index has swelled 33% YoY so far this quarter, indicating strong cargo yield momentum. The broker maintained its EBIT forecast for CATHAY PAC AIR but trimmed profit forecasts for joint ventures and associates, lowering net profit estimates for 2026-28 by 6-10%. It expected the three major airlines to remain loss-making, forecasting a loss of RMB22 billion in 2026, compared with consensus expecting a profit. For 2Q26, the broker estimated that the three airlines will post a combined loss of about RMB17 billion. The broker preferred CATHAY PAC AIR over China's three major airlines. It maintained a Buy rating on CATHAY PAC AIR, citing benefits from recent traffic diversion from Middle East routes; rising ticket prices and air cargo should offset fuel costs, while constrained capacity and strong premium demand in the local market support earnings. Given price-sensitive demand, weak pricing power, unhedged fuel risks and limited cost pass-through ability, the broker retained Reduce ratings on the H shares of AIR CHINA (00753.HK), CHINA EAST AIR (00670.HK) and CHINA SOUTH AIR (01055.HK). The broker also adjusted target prices for CATHAY PAC AIR and the three major airlines' H shares as follows: Company | Investment Rating | TP (HKD) AIR CHINA (00753.HK) | Reduce | 3.2 -> 3.8 CHINA EAST AIR (00670.HK) | Reduce | 2.2 CHINA SOUTH AIR (01055.HK) | Reduce | 3 -> 2.7 CATHAY PAC AIR (00293.HK) | Buy | 16 -> 15.3 ~ AASTOCKS Financial News Website: www.aastocks.com | |