Across The Border | China’s airline stocks set to take off this summer as passenger numbers surge
Easing pressure from oil prices, yuan depreciation trigger strong demand for sector shares
Investors could probably expect a boom time from Chinese airline stocks, after the industry recorded a surge in passengers at the start of the summer travel season. As pressures from oil prices and yuan depreciation have both eased, analysts estimate the sector to take off this summer, thanks to robust tourism demand, consumption upgrading, and the opening of Shanghai Disney Resort.
The air transport sector in the A-shares market jumped 7.4 per cent last week, outperforming the 2.6 per cent gain in the large-cap CSI300 index. The biggest gainer is China Southern Airlines (CSA), which soared 12.3 per cent for the entire week. On Monday, shares of CSA rose further by 0.5 per cent to close at 8.47 yuan.
“We favour airlines in the coming quarter, as there are multiple drivers set to boost their earnings growth,” Xiaofeng Shen and Xin Yang, analysts from China International Capital Corp (CICC), said in a recent research note.
Peak season demand will be a strong driver of earnings growth for airlines, they said.
China’s three biggest airline companies – Air China, China Eastern Airlines (CEA), and CSA – all posted strong passenger traffic growth in June. CEA’s revenue passenger kilometres (RPK) jumped the most by 18.5 per cent in June from a year earlier, followed by Air China’s 10.3 per cent and CSA’s 8.6 per cent.
