Air China and China Eastern Post Record 2022 Losses

Air China’s 00753 and China Eastern Airlines’ 00670 record losses in the fourth quarter of 2022 were well expected, but we are slightly disappointed with management’s guidance. While the outlook for domestic travel is ahead of our expectations, international travel is sluggish. We raise our 2023 domestic capacity forecasts to 107%-109% of 2019 levels for the two airlines, but cut our international capacity forecasts to 43%-45% of 2019 levels. We estimate both will remain lossmaking in 2023 with CNY 3.2 billion net loss for Air China and CNY 1.9 billion net loss for China Eastern. This contrasts with our CNY 7.8 billion profits estimate for China Southern, primarily as a result of China Southern’s larger exposure to the domestic market.

We keep our fair value estimate at HKD 6.50 for Air China and HKD 2.70 for China Eastern. Their shares are trading above our fair value estimates. We think Tongcheng Travel is a better pick if investors would like exposure to the China travel recovery.