Chinese Airlines Narrowed Losses in Q1; International Travel Recovery Still a Long Way to Go

We keep our earnings and fair value estimates for the three Chinese airlines—Air China, China Southern Airlines, and China Eastern Airlines—unchanged. As expected, all three remained lossmaking in the first quarter, but losses narrowed significantly year on year. We project the three airlines to turn around in the second quarter as passenger traffic rises and jet fuel prices soften. We keep our 2023 domestic capacity forecast at 107%-110% of 2019 levels and international capacity forecasts at 36%-45%. We project CNY 3.2 billion net loss for Air China, CNY 7.8 billion net profit for China Southern, and CNY 1.9 billion net loss for China Eastern. We value Air China at HKD 6.50 per share, China Southern at HKD 4.92, and China Eastern at HKD 2.70. Their H-shares closed 6%-14% above our fair value estimates as of April 28. We suggest investors wait for better entry points.