Analysts say that among China’s struggling airlines, Hong Kong-owned Air China is the most likely candidate for restructuring. China, the world’s second-largest economy, faces unique challenges and is far slower than the United States to recover from the shock of the 2020-2023 pandemic. However, Beijing-based Air China has been cited by several analysts, from DBS to Citigroup, as the top carrier for sustainably increasing Chinese travel both domestically and internationally. Air China, a member of United Airlines’ Star Alliance group, is “the only Chinese network airline serving all six continents, with lucrative China-to-Europe and China-to-North America routes. “We are seeing a particularly strong presence,” DBS analysts Jason Sam and Paul Yong said in a report on Thursday. DBS maintained its Buy rating and price target of HK$5.60 (72 cents), implying a 13% upside from Air China’s closing price on Friday. 753-HK 5Y Line Air China 60% below peak Hong Kong’s Hang Seng Index rose nearly 18% in 2024, but Air China recorded a more subdued low-single-digit gain, trailing its 2018 high. The high level remained below 60%. Analysts at DBS said this made Air China’s valuation “significantly more attractive” and close to its pre-pandemic five-year average. “The generation of better-than-expected cash flows will enable the group to quickly deleverage and repair its battered balance sheet.” The Lunar New Year in late January to early February will provide a tailwind. There is a possibility. Chinese booking site Trip.com noted that interest in traveling abroad during this holiday has increased significantly. Airline demand for travel from mainland China to parts of Europe is up about 50% from a year ago, while inbound demand, with travelers coming from both nearby Japan and as far away as the United States, has tripled. Trip.com said in its Tuesday forecast. Expansion of visa-free travel In recent months, Chinese authorities have expanded their visa-free travel policy for travelers from several countries, including parts of Europe and Japan in particular. Citi analysts reiterated their buy rating on Air China in early December, calling it a top travel stock pick among Chinese airlines. They expect the government’s economic policies to support consumption next year. Analysts at JPMorgan echoed similar optimism in late November, citing Air China’s greater exposure to international travel than its competitors and its roughly 30% stake in Hong Kong-based Cathay Pacific. expressed a viewpoint. Analysts upgraded Air China from neutral to overweight, reversing a downgrade they made in early October, according to FactSet. JPM analysts also raised their price target to HK$5.90 on the expectation that earnings will improve significantly over the next two years. JPM analysts also expect airlines to benefit from lower fuel costs if President-elect Donald Trump follows through on his promise to lower energy prices further. U.S. airline stocks have outperformed the S&P 500 since early October, according to JPMorgan analysts. Back in early November, Goldman Sachs analysts had already named Air China as a “key beneficiary” of increased business travel and the resumption of long-haul flights. Goldman expects domestic air passenger traffic to grow 11% in 2024, above 2019 levels, and grow another 6% in 2025. Analysts expect international passenger numbers to recover to slightly above 2019 levels over the next year. Still, Air China has a long way to go to catch up with its partner United Airlines. United Airlines closed at a new record in early December and soared 135% in 2024, posting its biggest annual profit ever. Chicago-based United Airlines flies more international flights than any other U.S. airline and is benefiting from lower jet fuel costs and a continued rebound in travel demand after the pandemic. —CNBC’s Michael Bloom and Sean Conlon contributed to this report
