Since February, many European countries have added a new high level of diagnosis in covid-19, changed epidemic prevention attitude and relaxed epidemic control
At the beginning of February, the epidemic prevention attitude of many countries in Europe changed, and covid-19 was treated by bias. 1) At present, the number of newly diagnosed covid-19 in a single day in Europe is at an all-time high, but this round of epidemic shows the characteristics of high infection and low mortality: from January 31 to February 6, 2022, the average number of newly diagnosed covid-19 in Europe was about 1.47 million (the average number of newly diagnosed covid-19 in the previous day was about 300000-400000); However, the mortality rate (new deaths / new confirmed cases) decreased to 0.2%. 2) The epidemic prevention attitude of many European countries has changed, and China’s covid-19 epidemic prevention restrictions have been relaxed or even completely abolished: from the end of January to the beginning of February, France, Italy, Denmark, Norway and other European countries have relaxed the number of people and business hours in restaurants, gymnasiums, theatres and other places, and lifted the restrictions on assembly and home office, Even cancel the regulations on self isolation of positive patients, and the prevention and control attitude towards covid-19 is gradually biased towards pandemic influenza. 3) Many European countries have abolished the entry nucleic acid testing regulations: for example, Norway will no longer conduct nucleic acid testing on entry passengers from February 1; From February 11, vaccinators will no longer need nucleic acid testing and home isolation when entering the UK.
China’s vaccination rate has reached the theoretical basis of group immunization. We expect that China’s epidemic prevention policy is expected to evolve abroad and gradually relax from inside to outside in the future
China’s vaccination rate has reached the base of mass immunization. According to Guangzhou Daily, academician Zhong Nanshan said in December 2021 that only when China’s vaccination rate reached 83% can it achieve theoretical mass immunization. According to the National Health Commission, the vaccination rate had exceeded 86.25% as of January 7. From Figure 3, we find that the peak period of the second booster injection in China is from June to August 2021, which will be pushed back for about half a year. We expect that China’s vaccination rate will reach a high level by March 22.
We expect that China’s epidemic prevention policy is expected to evolve to foreign practices, and China’s epidemic prevention restrictions are expected to be relaxed after the Winter Olympics and the two sessions. If it passes the stress test, the entry-exit policy is expected to be relaxed.
Optimistic about the air transport sector: the certainty of supply growth rate in the 14th five year plan will decline. Once the demand breaks out, the rise of ticket prices under the mismatch of supply and demand is expected to drive the aviation cycle
Supply side: the certainty of supply growth in the 14th five year plan has decreased: under the constraints of upstream production capacity and Aviation Division capital, the supply growth of civil aviation in China has slowed down significantly since the epidemic. According to the transportation capacity introduction plan of listed airlines, the CAGR of Air China, China Southern Airlines and China Eastern Airlines in 19-23 years is 2.0%, 4.9% and 1.8% respectively. Considering that it will take about 2-3 years from placing an order to delivering the aircraft after the epidemic, and the number of 737max has been introduced, accounting for only 2.5% of the number of passenger aircraft in China by the end of 2020, we believe that the impact of 737max go around on supply is limited. Therefore, we expect the growth rate of transport capacity during the 14th Five Year Plan period to be 11.5% higher than that of CAGR in 2015-18 There will be a significant decline of 2%.
Demand side: aviation demand is strong and resilient, and grows steadily under normal circumstances: before the epidemic, the RPK of civil aviation in China tended to grow in double digits every year from 2009 to 2018. Considering that the travel demand has been suppressed by the epidemic for two years, once China’s epidemic prevention restrictions are relaxed and the door is opened, we believe that the travel demand is expected to rebound violently.
Once the demand breaks out, the mismatch between supply and demand is expected to drive the aviation cycle. We believe that the specific realization path may be “the passenger seat rate and ticket price rise together → the passenger seat rate stabilizes and the ticket price increase exceeds expectations → the three major airlines are expected to obtain 10 billion scale profit increment in the short term of 1-3 years”. 1) The opening of the door will further promote the mismatch between supply and demand in the Chinese market: after the opening of the door, the international transport capacity of the airlines transferred to the Chinese market due to the epidemic will return to the original position. At this time, the supply and demand surplus in the Chinese market will further expand, laying a better foundation for the airlines to raise prices; 2) Over the past three years, the ceiling of ticket prices has been fully improved, providing a good foundation for the rise of ticket prices in the business cycle: since the implementation of the market-oriented reform of Air China routes at the end of 2017, the full price tickets of popular core routes have been raised for many times. Taking the Beijing Shanghai line as an example, as of the 21st Winter and spring flight season, the full price tickets have increased by 58% under six price increases; We estimate that the weighted average fare of all Chinese routes will increase by about 20%. 3) Calculation of profit elasticity: in the investment strategy of air transport industry in 2022: opening the road of recovery in twists and turns, we calculated the profit elasticity of listed airlines. Taking Air China as an example, on the basis that the unit income and unit cost are restored to the level of 2019, if the ticket price is + 1%, the net profit increment is 980 million yuan; If the oil price is + 1%, the net profit increment is – 310 million yuan; If the RMB appreciated by 1%, the net profit increment would be 480 million yuan.
Optimistic about the airport sector: the marginal relaxation of entry-exit restrictions is gradually approaching, the scale of airport tax-free sales is expected to usher in a deterministic recovery, and the tax-free elasticity is also expected to recover
In mature airports, tax-free income contributes the vast majority of income and profits. The tax-free business is often in the form of franchise, and the cost corresponding to the rental income obtained by the airport is generally less. Take Shanghai International Airport Co.Ltd(600009) as an example, in 2019, the tax-free business contributed 70% of the net profit.
The robustness of the airport sector is prominent. Once the door is opened, we believe that the international passenger flow and the sales of airport duty-free stores will usher in a deterministic recovery. When the bargaining power is restored, the flexibility of airport duty-free will also be restored, and its performance & valuation will usher in a deterministic repair.
Investment advice
1. Recommendation Guangzhou Baiyun International Airport Company Limited(600004) : we expect that Guangzhou Baiyun International Airport Company Limited(600004) tax exemption elasticity is expected to remain unchanged. Once the international passenger flow recovers, the tax exemption elasticity is expected to be the largest among listed airports; In terms of taxable business, LV store will open in T2 in 2022. We think it is expected to cause herding of luxury brands, and the prospect may continue to improve. We think the company is expected to usher in double repair of performance and valuation.
2. Recommended Air China Limited(601111) : in 2019, Air China’s international transport capacity accounted for 41.7%; Among the company’s international flights, long-distance European and American flights account for 23%, which are the highest level among listed airlines. Considering that the company has the best quality routes, once the door is opened, we think the company will show high performance flexibility.
3. Recommendation China Southern Airlines Company Limited(600029) : by the end of 2021, China Southern Airlines, Air China and China Eastern Airlines had operated 878, 746 and 752 aircraft respectively. Once the mismatch between supply and demand occurs and the ticket price rises significantly, we believe that China Southern Airlines, with the largest fleet, is expected to benefit fully. In addition, the company’s international transport capacity accounted for 31.6% in 2019. Once the international passenger flow recovers, the company will also show high elasticity.
4. Recommendation Shanghai International Airport Co.Ltd(600009) : the expectation of opening up the country will continue to strengthen. At that time, the company’s tax-free income is expected to increase significantly and the tax-free flexibility is expected to recover. We believe that after the opening of the international door, the international passenger flow will usher in a deterministic recovery, the bargaining power of the airport will be restored simultaneously, and the scale of duty-free sales will be greatly increased. Once the sales volume exceeds the guaranteed minimum, the marginal cost of China free in Shanghai International Airport Co.Ltd(600009) duty-free channels will be lower than that of other channels. We believe that China free has the power to tilt resources to Shanghai International Airport Co.Ltd(600009) , and the scale of duty-free sales is expected to exceed expectations, The company’s performance is also expected to exceed expectations.
Risk warning: the epidemic repair is not as expected; The repair demand is less than expected; Large fluctuations in oil prices and exchange rates; The growth rate of tax exemption scale was lower than expected.
