Chinese Airlines Earnings: Falling Passenger Yields Weigh on Performances

We made minimal changes to our forecasts for Air China and China Eastern Airlines given their in-line third-quarter results. However, we reduced our 2024 earnings estimate for China Southern Airlines by CNY 2.8 billion after lowering our passenger yield assumption. We expect Air China and China Southern to break even in 2024, while China Eastern is projected to incur a loss of CNY 3.4 billion. Consequently, we maintain our fair value estimates at HKD 3.85 (CNY 3.54) for Air China and HKD 1.79 (CNY 1.65) for China Eastern but cut our fair value estimate by 3% to HKD 2.83 (CNY 2.61) for China Southern. We think the three Chinese airlines are overvalued with an unfavorable demand outlook, and we prefer Cathay Pacific, which trades at a 12% discount to our fair value estimate.