Guotai Haitong's latest research report reveals that China's three major airlines—Air China, China Eastern Airlines, and China Southern Airlines—have projected significant year-on-year loss reductions for Q2 2025, aligning with the firm's earlier forecasts. The brokerage anticipates a robust summer travel season will propel the industry toward profitability this year.

Crucially, the deepening "anti-involution" policies are expected to deliver short, medium, and long-term benefits to aviation. With peak-season competition risks gradually subsiding, investors should position for the sector's structural growth narrative. Guotai Haitong maintains its "overweight" rating on airlines, citing sustainable profit expansion driven by disciplined capacity growth and resilient demand.

**Q2 Performance Snapshot** Industry-wide passenger traffic grew 7% YoY in Q2 2025, while improved fleet utilization and load factors alleviated non-fuel cost pressures. Despite flat domestic fuel-inclusive fares, a 17% YoY drop in jet fuel prices translated directly into bottom-line gains. All three carriers reported dramatically narrowed losses: - Air China: Q2 net loss of ¥1.6–3.4 billion (reduced by ¥10–15 billion YoY) - China Eastern Airlines: Q2 net loss of ¥2.1–6.1 billion (reduced by ¥14–18 billion YoY) - China Southern Airlines: Q2 net loss of ¥5.9–8.1 billion (reduced by ¥10–14 billion YoY)

**Summer Travel Season Outlook** Early indicators point to a strong summer: Domestic load factors have risen 1–2% YoY, while base fares remain steady. More tellingly, fuel-adjusted fares (reflecting core profitability amid falling oil prices) continue their upward trajectory. With advance bookings for late July and August showing YoY fare increases and regulators strictly limiting extra flights, supply-demand dynamics appear favorable. Buoyant family travel demand and last year’s low base suggest both load factors and fares will climb, allowing carriers to retain most fuel-cost savings as profit.

**Anti-Involution Policy Implications** The Civil Aviation Administration of China’s June 26th crackdown on "excessively low-price competition" targets inefficient capacity dumping and predatory pricing. This intervention comes as airlines’ "load-factor-first" strategy—while boosting fleet utilization—has suppressed fares below 2019 levels despite high fuel costs. Guotai Haitong sees the policy delivering triple benefits: 1. **Short-term**: Curbing destructive fare wars 2. **Medium-term**: Enhancing revenue management effectiveness 3. **Long-term**: Cementing low single-digit capacity growth

Effective implementation could accelerate the industry’s profit recovery and establish a higher earnings baseline. Risks remain from economic fluctuations, fuel prices, currency moves, and safety incidents, but the fundamental trajectory favors disciplined growth over chaotic expansion.