Shenwan Hongyuan Group Co., Ltd. released a research report stating that expectations of volume growth and price decline during peak season have been fully reflected. The Civil Aviation Administration's "anti-involution" policy is expected to optimize industry competition structure, providing long-term benefits to airline revenue levels. Under changes such as limited aviation supply chain recovery and improved wide-body aircraft utilization rates, aviation supply logic has been verified in multiple aspects. With fundamentals bottoming out and expectations of positive changes in oil prices and exchange rates ahead, the sector presents allocation value. From this year's market supply-demand structure perspective, market supply growth remains constrained, and the core logic of natural passenger volume growth remains unchanged. If domestic airline ticket prices warm up subsequently, it will continuously verify the logic supporting airline revenue improvement. The firm continues to recommend focusing on the aviation sector, as supply deceleration certainty is strong, demand side has elasticity, and with external oil price and exchange rate cooperation, airlines can release significant performance improvement potential.

Shenwan Hongyuan Group Co., Ltd.'s main viewpoints are as follows:

Global Perspective: Global aviation market growth has slowed somewhat, with capacity and traffic entering a normalized growth phase In H1 2025, global aviation passenger turnover (RPK) increased 5.1% year-over-year, with international RPK growing 7.0% and domestic RPK growing 2.0%. H1 2025 industry-wide capacity deployment (ASK) increased 4.8% year-over-year, with international ASK growing 6.5% and domestic ASK growing 2.2%. Passenger demand showed growth levels higher than capacity deployment, driving market load factor up to 82.5%, a year-over-year increase of 0.2 percentage points.

US Market: US aviation industry operations stabilize, costs and expenses decline, profitability continues to improve The aviation industry's profit margin reached 3.6% in H1 2025, up 0.9 percentage points year-over-year. US aviation industry revenue increased 1% year-over-year in H1 2025, while costs and expenses increased 1% year-over-year. According to Airlines for America data, ticket prices (inflation-adjusted) from January-July 2025 declined compared to 2019 and February-July declined compared to 2024, with inflation-adjusted ticket prices falling 5.1% year-over-year from early January through July. Ticket sales declined year-over-year in Q2 but turned significantly positive after entering peak season in July. After progress in tariff negotiations, consumer concerns about economic uncertainty have somewhat eased, and US airlines have regained confidence in second-half market recovery, with some guidance restored.

European Market: 2025 presents considerable uncertainties with risks and opportunities coexisting In January-February 2025, overall European aviation market ticket prices (inflation-adjusted) maintained year-over-year growth compared to 2024. March-April were affected by Easter holiday timing factors, with aviation ticket prices showing significant year-over-year volatility of -4.4% and +13.8% respectively, and May ticket prices down 3% year-over-year. Core markets (North Atlantic, Latin America, Europe) showed strong demand, with premium cabin performance offsetting weakness in US-origin economy class. European aviation market profitability, profit margins, and shareholder returns are expected to improve, but macroeconomic and geopolitical uncertainties still require attention.

Major Asian Aviation Markets: Surrounding market aviation passenger volume continues growing Southeast Asia and Japan-Korea major airports maintained year-over-year passenger throughput increases, with South Korea and Japan passenger volumes already exceeding pre-pandemic levels. Thailand's AOT Airport Group (January-July), South Korea airports (January-July), and Japan airports (January-May) passenger volumes increased 4%, 7%, and 21% year-over-year respectively. Among major global transit airports, benefiting from strong transit passenger flows and growth in their own market aviation demand, Singapore/Doha/India airports/Hong Kong International Airport passenger volumes in January-July 2025 changed +5%/+0%/+9%/+15% compared to 2024 respectively. Hong Kong International Airport's recovery rate remains at relatively low levels, but under the influence of the third runway opening, passenger flow increased significantly year-over-year.

Risk Warning: Significant RMB depreciation; substantial oil price increases; aviation safety incidents; travel demand below expectations.