Domestic jet fuel surcharges will be lowered

Event: Ctrip.com reported that on December 5th, domestic fuel surcharges will be lowered, and the reduction range of each leg will be 10 yuan. The fuel surcharges for the following 800 km (including) segments were reduced to 70 yuan; the segments above 800 km were lowered to 130 yuan.

Comments:

In December, the price of domestic jet fuel was lowered by 329 yuan/ton, and the impact of EPS was limited. The National Development and Reform Commission recently approved that the duty paid for the import of aviation kerosene (standards) to the coast in December was 7,473 yuan per ton, which was 329 yuan less than that in November, a decrease of 4.22%. The biggest negative factor for airlines' profits is high oil prices. The reduction in jet fuel prices will reduce airline costs. According to the semi-annual report of the listed company, for every 1% decrease in jet fuel price, the cost of Southern Airlines will be reduced by 185.3 million yuan and the cost of Eastern Airlines will be reduced by 146.8 million yuan; for every 100 yuan lower, the pretax profit of Air China will increase by 233.6 billion yuan. yuan. Historically, in December, the annual revenue of RPK on domestic routes accounted for 8%, and this jet fuel price reduction has a limited impact on the 2012 EPS of airlines.

The reduction in fuel surcharges will have the greatest impact on China Southern Airlines. Due to the different revenue structure of domestic airlines of various airlines, according to our calculation, the passenger traffic of Air China, China Eastern Airlines and China Southern Airlines domestic routes over 800 kilometers is about 73%, 67% and 62%. According to the static calculation of passenger traffic in 2011, this The reduction in fuel surcharges has the largest impact on China Southern Airlines' revenue, but the overall impact is limited.

Air transport entered the off-season and cargo shipments declined. After the Golden Week in October, the market began to turn weak, and the oversupply situation was clear. In October, the total civil aviation turnover was 5.32 billion ton kilometers, which was a year-on-year increase of 4.2% and the cargo volume was 456,000 tons kilometers, a year-on-year decrease of 3.0%. Passenger transport volume was 28.294 million people, an increase of 6.8% over the same period of last year, but the increase in transport capacity reached 10.7%. In October, the class-keeping rate was 80.7%, a decrease of 0.9 percentage points from the previous quarter. Although it remained at a relatively high level, it was lower than the monthly value since June.

The increase in foreign exchange gains can hardly prevent the decline in profits. In October, the renminbi appreciated 0.65% against the US dollar. According to statistics from the Civil Aviation Administration of China, the exchange-traded gains of airlines in October increased by 0.6 billion yuan year-on-year, while in September, the exchange earnings of flying companies decreased by 550 million yuan year-on-year. Although the exchange gains increased, due to low demand, the total profit of domestic airlines in October was 2.33 billion yuan, a decrease of 39% year-on-year.

The strong short-term RMB is expected to continue. In November, the renminbi appreciated by 0.17% against the US dollar. Benefiting from the improvement of economic fundamentals, we expect that renminbi buying will still be significantly stronger than selling by the end of the year, making the appreciation of the renminbi continue for some time. According to the semi-annual report of the relevant listed company, if the Renminbi appreciates by 1% against the US dollar, China Southern Airlines will increase its net profit by 440 million yuan, China Eastern Airlines will increase its net profit by 432 million yuan, and Air China will increase its pre-tax profit by 720 million yuan.

Investment Advice. We expect that the strong renminbi in December will enhance the airline exchange gains, enhance the attractiveness of the airline market, and stimulate the performance of the relevant company's stock market in the short term. However, the long-term trend of the industry's economic downturn has not changed. We believe aviation stocks will not have systematic trend opportunities in the next six months and maintain the industry's “neutral” investment rating.