After enduring the significant ravages brought by the COVID-19 pandemic from 2020 to 2023, the global aviation industry is slowly rebuilding itself, with varying degrees of success across regions. Particularly telling is the stark contrast between the recovery rates in the United States and China, where Chinese airlines seem to be struggling more profoundly. Amidst this context, experts and analysts are singling out Air China as a leading candidate for a turnaround, presenting unique attributes and potential for growth that may enable it to capitalize on the revival of international travel.
Air China is distinguished as the only Chinese airline that holds a comprehensive network, offering services across all six continents and with a particularly strong foothold in lucrative routes between China and Europe, as well as China and North America. This global reach offers Air China a competitive edge in an environment where many other airlines may be limited to regional or national travel. Analysts from prominent financial institutions, including DBS and Citigroup, highlight this broad market presence as a vital characteristic that positions Air China favorably in the upcoming travel resurgence.
With a buy rating and a price target of HKD5.60 set by DBS, the analysis indicates a potential upside of approximately 13% from the latest trading close. This contrasts sharply with Air China’s trading level, which remains more than 60% below its peak from 2018. Such a significant discount may reflect the market’s cautious view on the recovery trajectory of the airline industry in China, making Air China a potentially appealing investment opportunity for those willing to take a risk on its recovery.
A critical driver for Air China’s potential growth lies in the upcoming Lunar New Year festivities. Historically, this period has demonstrated high travel demand throughout China and across Asia. Recent reports from Trip.com indicate a notable increase in interest for international travel, particularly to Europe, with demand reported to be up by as much as 50%. Such seasonal trends could catalyze Air China’s performance and may play a pivotal role in its ability to generate necessary cash flow to stabilize its finances and improve its balance sheet.
Furthermore, the Chinese government’s recent expansion of visa-free travel agreements with several countries could be another significant factor boosting international travel. By facilitating easier access for travelers from Europe and Japan, this policy change stands to further stimulate demand for international flights, a sector where Air China maintains a strong competitive position.
The growing optimism among analysts about Air China’s prospects is not a mere coincidence. Various investment firms have reiterated their bullish outlooks on the airline, partially due to anticipated support from Chinese economic policies that are expected to stimulate consumer spending. In November, JPMorgan adjusted their rating on Air China to overweight, citing its advantageous position in the international market, aided by its stake in Hong Kong’s Cathay Pacific.
Goldman Sachs has also identified Air China as a primary beneficiary of increasing business travel and the revival of long-haul flights, forecasting robust growth trends for domestic air travelers in the near future. Their predictions suggest that domestic air traffic could surpass pre-pandemic levels by 2024, indicating a vigorous recovery phase that Air China is well-equipped to exploit.
While Air China is poised for potential growth, it must contend with the formidable competition from both domestic and international carriers. For instance, United Airlines, a member of the same airline alliance, has performed exceptionally well, experiencing a remarkable 135% increase in share price that reflects a more aggressive recovery strategy and greater international route offerings.
Air China’s prospective recovery will require not only an effective response to rising travel demand but also the ability to manage costs, especially fuel. Analysts have pointed out that lower fuel prices might provide an additional cushion as airlines navigate their financial recoveries, further indicating positive trends ahead.
Air China represents a compelling case study in resilience and potential in an airline sector still grappling with the remnants of the pandemic. Armed with a strategic international network, increasing traveler interest amid favorable policy changes, and a supportive economic climate, Air China stands at a pivotal juncture. As the travel landscape continues to evolve, both investors and industry watchers will undoubtedly keep a close eye on how this airline adapts and succeeds in the face of rebuilding opportunities.