Events
China Eastern Airlines Corporation Limited(600115) announced that on March 21, 2022, a Boeing 737 passenger plane of China Eastern Airlines Yunnan Co., Ltd., a subsidiary of the company, lost contact over Wuzhou, Guangxi while performing the flight mission from Kunming to Guangzhou. At present, the plane crash has been confirmed. After the incident, China Eastern Airlines has now controlled all the 737800 flights of the company on the ground, and the flights in the air will not be executed after landing.
Core view
History: since the Yichun air crash in 2010, China’s civil aviation has operated safely for 4227 days. On the day after the Yichun air crash, China Southern Airlines, China Eastern Airlines and Hainan Airlines all fell by more than 3%. Since then, although China Eastern Airlines released the best semi annual report in the same period on August 30, China Southern Airlines and Air China also released the semi annual report with greatly increased performance. On August 31, aviation stocks still fell across the board, leading the decline in the two cities. Since then, aviation stocks have followed the rise and fall of the market and reached a high market value in November 2010. In the long run, the impact of emergencies on aviation stocks is short-term and more psychological. Aviation stocks will eventually return to the fundamental factors such as supply-demand relationship, RMB exchange rate fluctuation expectation, oil price fluctuation and consumption upgrading.
In the medium term, the control of the epidemic situation is still an important variable affecting the recovery of demand. The China Eastern Airlines incident may have a great impact on routes within 800 kilometers. Medium and short haul routes are strongly replaced and impacted by high-speed rail. The overall aircraft passenger occupancy rate will be affected in a short time after the aircraft crash. For the medium-range segment of 800 ~ 1200 km, it is expected that there will still be fierce competition between high-speed rail and air transportation. For routes over 1500 km, aviation has a strong irreplaceable effect. In the medium term, sporadic outbreaks may relapse or become the new normal, and the consumption potential of tourism travel drives the demand to recover in twists and turns. Gao Fu, director of the CDC, mentioned that China’s vaccination rate reached 70-80% from the beginning of 2022 to the middle of the year. With the increase of vaccination proportion and the launch of covid-19 specific drug, the demand for popular air travel has strong toughness. In the long run, aviation is still the safest means of transportation, and the growth of civil aviation demand mainly depends on macroeconomic growth and the improvement of residents’ income. In the past 10 years, the ratio of civil aviation passenger turnover growth to GDP growth has basically remained in the range of 1.5-2, and the steady development of the national economy is still the most fundamental driving force of civil aviation demand, Historically, after each external shock, China’s civil aviation demand will quickly return to the natural growth curve.
Supply will be further strained. 737800 belongs to Boeing 737NG series aircraft. From the official website of Boeing, from 2000 to the end of February 2022, Boeing delivered 4791737800 aircraft to customers all over the world. The delivery volume of 737800 aircraft accounted for nearly 45% of the total delivery volume. In terms of the models of China’s three major airlines, 737800 models accounted for about 35%. As of March 22, China Eastern Airlines has grounded all 737800 models. Considering that after the air crash of Egypt airlines in 2019, the Civil Aviation Administration of China has urgently grounded all 737max models of the aviation department. If the civil aviation administration takes the follow-up limited flight measures, the supply of transportation capacity will be further strained. New orders may be delayed. Affected by the air crash, undelivered orders may face cancellation. All airlines need to reissue new orders and introduce new transport capacity. In the medium term, the recovery of aircraft supply will slow down.
Investment strategy: Generally speaking, the airport sector will face the impact of the demand side in the short term. Looking at the whole year, the pattern of demand repair and tight supply remains unchanged, and the expectation of superimposing the opening of international lines remains unchanged. It is expected that the growth rate of civil aviation capacity will be relatively conservative during the 14th Five Year Plan period. At present, the aviation industry is at the bottom of the cycle, and the trend of gradual recovery of aviation demand is relatively certain. Superimposed on the fact that the global air transport capacity supply has entered a large-scale contraction cycle, we believe that civil aviation passenger transport is expected to recover to 80% ~ 90% before the epidemic, the industry concentration is further improved, and the judgment of “stronger than the market” is maintained for the aviation board.
Risk tips
The epidemic situation occurred repeatedly, and the economic growth rate was lower than expected; Risk of sharp rise in oil prices; The impact of safety accidents exceeded expectations
