Analysis of Airlines' Operations in China

The recovery of demand is relatively limited, and the airline continued to suffer losses in Q3. In the first three quarters of 2022, the aviation sector (including Air China, China Eastern Airlines, China Southern Airlines, Spring Airlines, Jixiang Airlines, and Huaxia Airlines) achieved a net loss attributable to the parent company of about 80 billion yuan, an increase of 55.4 billion yuan compared to the same period last year (a loss of 24.6 billion yuan). The main reason is that the domestic epidemic has limited the recovery of aviation demand, and the negative impact of oil exchange fluctuations on the cost side is still ongoing, In the third quarter of 2022, the aviation sector suffered a net loss attributable to the parent company of approximately 26.3 billion yuan, an increase of approximately 18.2 billion yuan compared to the same period last year (a loss of approximately 8.1 billion yuan), and a decrease of approximately 4.87 billion yuan compared to the second quarter of 2022 (a loss of approximately 31.2 billion yuan). In 2022, the production scale of China's civil aviation transportation has significantly shrunk, and it is expected that the recovery level of the annual freight and mail transportation volume will significantly decrease compared to 2021. On the whole, although the domestic epidemic situation is still repeated, with the continuous progress of COVID-19 vaccination/treatment, the recovery of aviation demand is a deterministic event, and the airline's profitability will return to the growth track in the future. Looking ahead, with the gradual relaxation of China's entry quarantine policy and the further recovery of international flights, the profitability of airlines will also gradually recover.

The price war in the express delivery industry has eased, and the profit recovery of express delivery companies has shown differentiation. In the first three quarters of 2022, five express delivery companies achieved a net profit attributable to the parent company of approximately 8.6 billion yuan, a year-on-year increase of 158%. This is mainly due to SF Holdings' low base in the same period of 2021 and the consolidation of Kerry Logistics. At the same time, Tongda Group has benefited from the overall profit recovery brought by the easing of price war this year. In the third quarter of 2022, five listed express delivery companies achieved a total net profit attributable to the parent company of approximately 3.5 billion yuan, an increase of 116% compared to the same period last year. Overall, the domestic epidemic has repeatedly overlapped with sluggish consumption, and the growth rate of demand in the express delivery industry continues to be at a low level. However, Tongda series companies have benefited from the easing of industry price wars and rapid recovery of profitability; At the same time, it should also be noted that the profitability of top companies has differentiated; In addition, the market has entered the traditional peak season of Q4, and considering last year's low base and the impact of the early epidemic, the industry's prosperity is expected to further repair/improve.

Airbus estimates:
With the continuous growth of global logistics and freight demand, what scale will the number of cargo planes in China reach in the next 20 years? According to Airbus forecast analysis, by 2041, with the growth of the market, the size of the domestic cargo aircraft fleet will reach 690, accounting for over 20% of the global market. Among them, 630 will be new cargo aircraft, accounting for over 25% of the global new cargo aircraft.

China's cargo and mail transportation capacity continues to grow:

Freight flights have developed significantly in recent years, especially during the pandemic, with a significant increase in the number of cargo flights. Many airlines have launched passenger to cargo flights. In 2019, the total number of all cargo aircraft in China reached 173, and in 2021, the fleet of all cargo aircraft in China increased to 198, with 12 freight airlines, an increase of 6 compared to 2015. In 2021, China's regular cargo flights will reach 242 cities in China (excluding Hong Kong, Macao, and Taiwan), connecting 67 cities in 44 international countries, including 30 countries where all cargo regular flights are available. Affected by the epidemic in 2020