00670 Should I Buy

The analyst rating changes are primarily influenced by the following reasons: 1. Supply-Demand Dynamics: Chinese airlines are experiencing the strongest supply-demand dynamics in over a decade, with limited capacity growth due to aircraft delivery shortages, which is expected to be around 3-4% in 2026-27. This positive aspect supports a cautious outlook. 2. High Load Factor: The industry's load factor reached a historical high in 4Q25, indicating strong demand for air travel, which is a positive indicator for airline performance. 3. Geopolitical Risks: The ongoing war between Iran and the US has introduced significant short-term risks, leading to a surge in Brent crude oil prices by about 50% to USD115 per barrel. This poses a challenge for airlines, especially since fuel costs account for about one-third of their operating expenses. 4. Lack of Hedging: Chinese airlines currently have no hedging in place against rising fuel costs, which exacerbates the financial risk associated with fluctuating oil prices. 5. Forecasted Oil Prices: JPMorgan's base case scenario anticipates oil prices to stabilize at USD80 per barrel for 2026-27, which could result in losses or near break-even for the three major Chinese airlines. 6. Stock Price Adjustments: Industry stock prices have already adjusted by about 30% due to geopolitical tensions, prompting a cautious outlook from analysts until the oil price situation becomes clearer. Based on these factors, JPMorgan upgraded AIR CHINA's rating from Underweight to Neutral, reflecting a more favorable outlook amidst the challenges, while downgrading CHINA EAST AIR from Neutral to Underweight and maintaining an Underweight rating for CHINA SOUTH AIR due to the ongoing risks and uncertainties.