Mainland China Cuts Inbound Quarantine Days; Chinese Airlines on Track to Recover

The three Chinese airlines we cover—Air China, China Southern Airlines, and China Eastern Airlines—reacted positively on the news of the Chinese government cutting the inbound quarantine days with their H-share prices up 2%-5% on Nov. 11, 2022. While we do not predict a significant boost to travel recovery from this policy change, we think the relaxation marks a positive step toward eventual transition to living with COVID-19. We keep our base-case assumption that China will meaningfully ease its zero-COVID policy in the second half of 2023. We note upsides to our 2023 earnings estimates if China opens the border after the Lunar New Year, as per recent management guidance from Asia aviation industry peers. This may bring capacity rebound one quarter ahead of our current estimates. However, we are more comfortable with our current assumptions given the time required to prepare for reopening such as mass vaccination and medical resources ramp-up. As such, we retain our fair value estimates for all the Chinese airlines. The shares are all trading around or above our fair value estimates. We suggest investors wait for better entry points.