According to JPMorgan's research report, China's aviation industry delivered weaker-than-expected passenger traffic during the combined Mid-Autumn Festival and National Day holiday period, with airlines continuing to lose market share to rail rather than seeing a broad-based recovery in air travel demand.

The bank maintained a cautious stance, noting that demand is entering the off-peak season, potential fuel surcharge increases could further suppress demand, and elevated fuel costs continue to weigh on profitability.

On individual stocks, the bank assigned a "Neutral" rating to Air China Ltd (HKEX: 00753) H-shares with a target price of HK$4.3; an "Underweight" rating to both China Eastern Airlines Corp Ltd (HKEX: 00670) and China Southern Airlines Co Ltd (HKEX: 01055) H-shares with target prices of HK$2.6 and HK$2.7 respectively; and an "Overweight" rating to Cathay Pacific Airways Ltd (HKEX: 00293) with a target price of HK$16.

The bank noted that according to Ministry of Transport data, from October 1 to 6, airlines carried 14 million passengers, down 1% year-on-year, while rail transported 128 million passengers, up 12% year-on-year.

Over the full seven-day holiday (October 1 to 7), total cross-regional passenger volume reached approximately 2.1 billion trips, averaging about 306 million per day, up only 1% year-on-year. Of this, rail accounted for 152 million trips, up 13% year-on-year, while aviation handled 17 million trips, or roughly 2.4 million per day, broadly flat year-on-year.

The bank views this divergence as negative for aviation, particularly on medium-haul domestic routes where high-speed rail is competitive on price, punctuality, and city-center convenience.

Pricing data was mixed: FlightMaster and pre-holiday data showed domestic tax-inclusive fares up approximately 12% year-on-year, broadly in line with the bank's preview. However, VariFlight data showed domestic gross fares from September 28 to October 4 fell approximately 6% year-on-year, reflecting weaker actual pricing during the core holiday period.

Starting October 10, domestic fuel surcharges were raised to RMB 50 per ticket for short-haul routes (800 km or less) and RMB 90 for long-haul routes (over 800 km). Combined with the approximately RMB 50 airport construction fee, this could suppress discretionary demand and weaken load factor recovery.

The bright spot was outbound travel: Umetrip data showed outbound ticket bookings exceeding 1.2 million, up approximately 4% year-on-year, while inbound bookings exceeded 1.1 million, up approximately 6% year-on-year.

Cirium data showed Asia regional routes leading the recovery, with South Korea flights up 20% year-on-year, and Thailand, Malaysia, Vietnam, and Singapore up 20%, 27%, 15%, and 11% respectively. Japan remained the major drag, with capacity down 54% year-on-year and still approximately 53% below 2019 levels.