JP Morgan released a research report stating that Hong Kong and mainland aviation sectors have underperformed the broader market year-to-date due to cost pressures, intensified competition, and weak pricing power that have compressed profits. Recent sector stock price rebounds have been driven by market expectations of strong travel demand during the October Golden Week and price stabilization. However, the bank believes the sustainability of this momentum remains uncertain as the industry is about to enter the low season.

The bank also believes that the impact of anti-involution and related regulatory measures is limited, as these initiatives are currently still unable to substantially improve pricing levels. Therefore, the bank maintains its forecast of flat pricing for 2025-27, reflecting the continued diversion of demand by high-speed rail amid weak economic conditions.

In terms of individual stocks, the bank is most bullish on Spring Airlines (601021.SH) and CHINA EAST AIR (00670)(600115.SH), followed by Cathay Pacific Airways (00293) and Air China (00753)(601111.SH), while China Southern Airlines (01055)(600029.SH) is the least favored.

The bank upgraded Cathay Pacific's rating to "Neutral" with a target price raised from HK$8.2 to HK$9.1, citing its dividend yield exceeding 6% and attractive valuation. Regarding CHINA EAST AIR's divestiture of its cargo business to focus on passenger services, and like Spring Airlines, being based in Shanghai, both companies are best positioned to benefit from the strong recovery in domestic tourism.

Therefore, the bank upgraded CHINA EAST AIR A-shares rating to "Overweight" with a target price raised from RMB4.1 to RMB5.0, while Spring Airlines maintains its "Overweight" rating with a target price raised from RMB63 to RMB65.