- The three Chinese flag carriers, Air China, China Eastern and China Southern Airlines released profit warnings for their 1H22 results, with all three airlines expecting substantial losses during the period.
- Despite the recent loosening of international travel restrictions and stabilising domestic epidemic situation, the Chinese airlines should remain in the red in 2H22, albeit with narrower net losses
- Consensus estimates are still too optimistic at this juncture, and will likely be revised down aggressively
- Remain neutral on the Chinese Airlines
|Company||1HFY22 Net Profit Range (RMB millions)||y-o-y change (RMB millions)||FY22F Consensus Net Profit Projection (RMB millions)|
|Air China||-18,500 to -21,000||-12,969||-15,161|
|China Southern||-10,000 to -12.100||-6,360||-10,786|
|China Eastern||-17,000 to -19,500||-13,042||-14,650|
- China Southern Airlines outperformed its peers again, with Air China and China Eastern Airlines reporting considerably wider net losses on a y-o-y basis.
- Despite the recent easing of international travel restrictions (mandatory quarantine cut by half to seven days), China’s travel requirements continue to be among the most onerous in the world, and there continues to be a lack of visibility on its reopening.
- China’s COVID-zero will remain a drag on near-term passenger traffic. Although domestic flight activity has seen a swift rebound from June-22 amid the stabilising pandemic situation, the recovery may be fragile as Omicron is proving challenging to completely subdue, with multiple cities back in partial lockdowns again.
- Buoyant jet fuel prices coupled with a weaker RMB will also weigh on the Chinese airlines.
- Consequently, we expect the Chinese airlines to post even deeper losses in FY22F when compared to FY20/21. Contrarily, most other airlines in the world will likely see an improvement in their bottom line in FY22F.
- Anticipate some share price weakness as consensus projections for the three airlines are still too optimistic (the airlines will have to turn a profit in 2HFY22F to meet the street’s expectations), and will likely be slashed soon.