Aviation stocks continued their downward trend. At the time of writing, CHINA EAST AIR (00670) fell 3.81% to HK$3.79; AIR CHINA (00753) dropped 3.61% to HK$4.81; CHINA SOUTH AIR (01055) declined 3.16% to HK$3.98; and CATHAY PAC AIR (00293) decreased 0.81% to HK$12.28.

The movement follows reports that ticket agents have received notices from airlines regarding a planned increase in domestic fuel surcharges effective May 16. CICC pointed out that the U.S.-Iran conflict has led to a 75% month-on-month surge in the ex-factory price of jet fuel for April, with fuel surcharges set to rise by 500%, an impact far exceeding that of the Russia-Ukraine period.

The rapid increase in fuel costs is difficult to pass through, leading major global airlines to implement flight reductions to counter high oil prices. Morgan Stanley published a report stating that current ticket price increases are insufficient to cover the rising costs, indicating short-term profit margin pressure. Demand is also being affected by higher ticket prices.

The bank's base case scenario forecasts that aviation fuel prices will normalize to between $100 and $110 per barrel by the end of 2026. Consequently, the aviation industry's upcycle is expected to be delayed, with a recovery not anticipated until 2027.