China Galaxy Securities Co., Ltd. has released a research report suggesting that as oil prices gradually declined from mid-June, the year-on-year drop in civil aviation passenger numbers for weeks 24-25 of 2026 has already narrowed to single digits. Considering that domestic aviation fuel surcharges and gasoline prices are expected to fall further in July to levels seen before the US-Iran-Israel conflict, and with the autumn holiday approaching, passenger traffic growth in the third quarter is anticipated to turn positive, leading to a marginal improvement in the overall performance of the travel sector.

Recent Developments: In June, the social services sector saw an overall decline of 8.4%. Among its sub-sectors, professional services rose by 2.94%, while tourism & scenic spots fell by 12.13%, hotels & catering dropped by 14.73%, and education declined by 17.87%.

Key Industry Updates:

1) 9 Air Co., Ltd. announced on July 1st that it will reduce domestic route fuel surcharges starting July 5, 2026. As domestic airlines typically follow a unified standard for fuel surcharges, this move is expected to prompt other carriers to adjust accordingly, potentially further stimulating travel demand during the summer holiday period.

2) During the three-day 2026 Dragon Boat Festival holiday, Haikou Customs supervised duty-free shopping amounting to 202 million yuan, an increase of 8.6% year-on-year. High-end skincare products and smart digital devices were among the most popular categories.

3) On June 22, 2026, Marriott International, Inc. announced the introduction of its Moxy Hotels brand, which focuses on revitalizing existing properties, into the Greater China region. CG Hospitality Global plans to invest in and develop 100 Moxy Hotels in China over the next decade.

The core views from China Galaxy Securities are as follows:

With oil prices gradually receding, a recovery in the travel sector is anticipated for the third quarter. The significant rise in oil prices led to increased travel costs for consumers, severely impacting the entire travel industry chain in the second quarter. High-frequency data indicates that oil prices and weather conditions had a particularly pronounced effect in early May to June. Reduced airline capacity in weeks 22-23 of 2026 resulted in a double-digit decline in domestic civil aviation passenger numbers. Retail sales data for May and consumption figures for the June Dragon Boat Festival were both weak. However, as oil prices began to fall from mid-June, the decline in civil aviation passenger traffic for weeks 24-25 has narrowed to single digits. Given the expected further reduction in domestic aviation fuel surcharges and gasoline prices in July to pre-conflict levels, and the imminent autumn holiday, the firm believes passenger traffic growth could turn positive in Q3, leading to a marginal improvement in the overall performance of the travel sector.

The number of A-share and H-share companies announcing and implementing share buybacks increased in the second quarter. Since Q2, companies including Haidilao International Holding Ltd., Meituan, Guming, and Yum China Holdings, Inc. have announced or had founders voluntarily disclose share purchases or buyback plans. Notably, Haidilao founder Zhang Yong increased his stake in the company on May 21st, while Guming implemented a market buyback of 34 million shares concurrently with issuing a 1.96 billion Hong Kong dollar convertible bond. Share buybacks at the corporate level may signal a potential bottoming phase.

Risk Warnings: The risk of intensifying industry competition; the risk of macroeconomic downturn; and the risk of policy changes.