Goldman Sachs: Mainland airlines' passenger traffic recovery during the summer vacation exceeds expectations, but high oil prices drag down profits. Target prices for the three major airline stocks are lowered.

Goldman Sachs released a research report stating that the mainland aviation industry's passenger traffic during the summer transportation period is steadily recovering. As of August 9, the cumulative total passenger volume has increased by 4.2% year-on-year, with domestic and international routes growing by 4.3% and 3.1% respectively, which is better than market expectations. Domestic ticket prices (including fuel surcharges) have seen a year-on-year decline that has nearly leveled off, while prices on major international routes have increased by 9% year-on-year. However, the firm believes that high fuel prices are continuously eroding profits, as fuel surcharges can only cover approximately 55% of the additional fuel costs for the three major airlines. Therefore, they have lowered the profit forecasts for 2026 and the target prices for several airlines. The firm expects that the fleet supply of the three major airlines will grow by only 0.4% in 2026, with ongoing delays in aircraft deliveries supporting a tight supply situation. However, based on the forecast of an average Brent crude oil price of $86 per barrel in 2026, along with limited coverage by fuel surcharges, the firm has revised its performance predictions for Air China Limited (00753) from a loss of 497 million RMB to a loss of 5.39 billion RMB; for China Eastern Airlines (00670) from a loss of 2.156 billion RMB to a loss of 6.009 billion RMB; and for China Southern Airlines (01055) from a loss of 1.427 billion RMB to a loss of 4.9 billion RMB. In terms of target prices, the H-share price for Air China has been lowered from HKD 7.3 to HKD 6.4, for China Eastern Airlines from HKD 5 to HKD 4.4, and for China Southern Airlines from HKD 5.3 to HKD 4.6, while maintaining a "Buy" rating for all. Spring Airlines (601021.SH), due to its low-cost model being less sensitive to oil prices, has only seen its 2026 profit forecast adjusted down by 11% to 2.095 billion RMB, with its target price reduced from RMB 57.1 to RMB 56.3, also maintaining a "Buy" rating.