Analysts point to Hong Kong-listed Air China as the leading turnaround candidate among troubled Chinese airlines. China’s recovery from the shock of the pandemic in 2020-2023 has been far slower than that of the United States, as the world’s second-largest economy faces its own unique challenges. But analysts ranging from DBS to Citigroup believe Beijing-based Air China is the top choice to drive continued growth in China’s domestic and international tourism industry. Air China, part of the United Airlines Star Alliance group, “is the only Chinese network airline serving six continents around the world, with a particularly strong position on the profitable China-Europe and China-North America routes,” said DBS analyst Jie Jason Sum and Paul Yong said in a report Thursday. DBS Bank maintained a buy rating with a target price of HK$5.60 (72 cents), a 13% increase from Air China’s closing price on Friday. 753-HK 5Y route Air China is 60% below its peak Although Hong Kong’s Hang Seng Index rose by nearly 18% in 2024, Air China’s single-digit gains were more modest and lower, resulting in its stock price being 60% below its all-time high in 2018 Higher than above. DBS analysts said this made Air China’s valuation “significantly more attractive” and close to its pre-pandemic five-year average. “Stronger-than-expected cash flow will enable the group to quickly deleverage and repair its battered balance sheet.” The upcoming Chinese New Year, which runs from late January to early February, could provide a boost. Chinese booking site Ctrip noted a surge in interest in international travel during the holidays. Trip.com said in a forecast on Tuesday that demand for air tickets from mainland China to parts of Europe is about 50% higher than a year ago, while inbound demand has tripled, with visitors coming from as far away as Japan and as far away as the United States. Expanding visa-free travel In recent months, Chinese authorities have expanded visa-free travel to travelers from a number of countries, including parts of Europe and especially Japan. Citi analysts reiterated a buy rating on Air China in early December, calling it the top travel stock among Chinese airlines. They expect government economic policies to support consumption in the coming year. JPMorgan analysts expressed similar optimism in late November, citing Air China’s larger presence in international travel than rivals and its roughly 30% stake in Hong Kong’s Cathay Pacific. According to FactSet, analysts upgraded Air China’s rating to overweight from neutral, reversing a downgrade in early October. Based on expectations for significant improvement in profits over the next two years, analysts at JPMorgan Chase also raised the target price to HK$5.90. JPMorgan analysts also expect airlines to benefit from lower fuel costs if President-elect Trump follows through on his pledge to further lower energy prices. JPMorgan analysts said U.S. airline stocks have been outperforming the S&P 500 since early October. As early as early November, Goldman Sachs analysts had listed Air China as a “major beneficiary” of the increase in business travel and the resumption of long-haul flights. Goldman Sachs predicts that domestic air passenger traffic will grow by 11% in 2024, exceeding the level of 2019, and will grow by another 6% in 2025. Still, Air China still has a long way to go to catch up with its partner United, which closed at a record high in early December and surged 135% in 2024 for its biggest annual gain ever. Chicago-based United, which operates more international routes than any U.S. airline, has benefited from falling jet fuel costs and a continued recovery in post-pandemic travel demand. —CNBC’s Michael Bloom and Sean Conlon contributed to this report
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