Analysts at Guotai Haitong Securities Co., Ltd. have reiterated their overweight rating on the aviation and oil shipping sectors. The aviation industry continues to be favored for its long-term super-cycle logic, supported by market-based ticket pricing and limited supply growth. A boost in consumer spending is expected to further improve supply-demand dynamics, warranting an overweight stance. For oil shipping, the reopening of a key strait has restored capacity utilization to high levels, and the potential lifting of sanctions on Iran could create a period of exceptionally high and sustainable prosperity, unlocking valuation upside. Near-term market fluctuations present a strategic entry point for long-term positioning. Key insights from Guhtai Haitong are outlined below.
Aviation: International Oil Prices Retreat Rapidly, Summer Travel Season Begins on Optimistic Demand
International oil prices have fallen following US-Iran negotiations, with the decline occurring faster than anticipated. Last week, Brent crude and Singapore jet fuel prices dropped to approximately $70 and $110 per barrel, respectively. Considering the roughly one-month lag in domestic jet fuel price adjustments, it is expected that airlines' fuel costs during the summer travel period will gradually decrease, potentially reaching year-on-year parity by August. Recently, as secondary school entrance exams conclude, airline ticket sales have increased significantly as expected. Given the notable growth in hotel bookings for the summer and the industry's optimistic outlook for family travel demand, the first wave of passenger traffic is anticipated to peak in early to mid-July, with both volume and prices expected to improve compared to recent levels and show year-on-year growth.
Concurrently, the aviation industry is intensifying efforts to curb internal competition. Major airlines may lead the way in gradually narrowing data-sharing windows, potentially shifting the focus of airline revenue management from "peer competition" to "passenger demand," which should help reduce irrational competition. The rapid decline in oil prices allows the aviation sector to refocus on the long-term narrative of a super-cycle. Improving supply and demand fundamentals will ensure significant operational improvements during the peak season, likely catalyzing optimistic market expectations. Recommended stocks include Air China Limited, China Eastern Airlines Corporation Limited, Juneyao Airlines Co., Ltd., Spring Airlines Co., Ltd., and China Southern Airlines Company Limited.
Oil Shipping: Strait Reopening Leads to Soaring Then Falling Rates; Iran Sanctions Benefit Compliant Market
1) Short-term: US-Iran negotiations have initiated a 60-day period of strait opening and potential easing of sanctions on Iranian oil. Last week, vessel traffic through the strait increased nearly threefold week-on-week, recovering to 50% of February's level; VLCC traffic alone rose nearly twofold. VLCC freight rates surged and then retreated, with TCE on Middle East routes peaking at over $500,000 per day before falling back to around $300,000 per day. Rates on US Gulf and West Africa routes experienced a mid-June spike followed by a slight correction, remaining above $140,000 per day.
2) Medium-term: Following the strait's reopening, oil shipping capacity utilization is expected to return to the high levels seen before the conflict, with additional control over shipping routes providing further benefits. Subsequent inventory replenishment demand is anticipated. It is noted that the scale and timing of this restocking will be linked to futures-spot oil price differentials and the pace of crude production increases.
3) Long-term: If the lifting of sanctions on Iranian oil persists, the compliant oil shipping market could enter a period of exceptionally high prosperity lasting several years, thereby providing room for both earnings growth and valuation expansion. Short-term market volatility offers an opportunity to establish positions based on this long-term logic. Recommended stocks include China COSCO Shipping Energy Transportation Co., Ltd., China Merchants Energy Shipping Co., Ltd., China Merchants Nanjing Tanker Corporation, and CSSC Shipping Leasing Co., Ltd..
Container Shipping: Freight Rates on Main Europe-US Routes Continue Rising; Monitor July Tariff Policy Changes
On June 26th, the SCFI composite index rose 4% week-on-week, with Europe routes up 6-10% and US routes up 7%. Freight rates on Europe and US routes have accumulated increases exceeding 90% since May. Liner companies have implemented successive rate hikes since May to mitigate fuel cost pressures and restore freight rates ahead of the peak season. Shippers, aiming to avoid potential future rate increases and tariff hikes, have front-loaded shipments, leading to an early start to the peak season. This, combined with minor schedule reductions by carriers, has improved supply-demand conditions, supporting the significant rate increases in May and June.
As the wave of front-loaded shipments subsides and international oil prices decline, it is advised to closely monitor the changes and implementation of tariff policies across multiple countries in July. 1) The current US 10% tariff is set to expire in July; attention is on whether it will be increased. 2) The EU's small parcel tariff will take effect in July, with its potential impact possibly mirroring that of the US tariff increase in the second half of 2025. The sustainability of the current rate increases will likely hinge on subsequent peak season demand and the effects of tariff policies. Related stocks include COSCO Shipping Holdings Co., Ltd., Orient Overseas (International) Limited, SITC International Holdings Company Limited, Jinjiang Shipping Co., Ltd., and TS Lines Limited.
Risk factors include economic fluctuations, geopolitical risks and oil prices, tariff policies, exchange rates, and safety incidents.