JP Morgan: Rising oil prices offset the upturn cycle of China's aviation industry, maintaining a cautious view on the sector.

JPMorgan Chase released a research report stating that Chinese airlines are entering the strongest supply and demand situation in over a decade. Aircraft delivery shortages will limit capacity growth in 2026 to 2027 to around 3% to 4%, with industry passenger load factor reaching a historical high in the fourth quarter of last year. However, the conflict between Iran and the United States has become the dominant short-term risk, with Brent crude oil surging by about 50% to $115 per barrel, and Chinese airlines have not hedged at all, with fuel accounting for about one-third of operating costs. The bank's base case scenario predicts that oil prices will be $80 per barrel in 2026 to 2027, causing the three major mainland airlines to record losses or be close to breaking even in 2026. The bank pointed out that industry stock prices have adjusted by about 30% due to geopolitical tensions, and it maintains a cautious view until the outlook for oil prices becomes clearer. Air China Limited (00753) was upgraded from "underweight" to "neutral", with a target price raised from HK$4.5 to HK$4.8. CHINA EAST AIR (00670) was downgraded from "neutral" to "underweight", with the target price for China Eastern Airlines Corporation's H shares lowered from HK$3 to HK$2.7; China Eastern Airlines Corporation (600115.SH) was downgraded from "buy" to "underweight", with the target price for A shares lowered from RMB 5 to RMB 3.3. CHINA SOUTH AIR (01055) has a rating of "underweight" and the target price for H shares was lowered from HK$2.9 to HK$2.8; China Southern Airlines (600029.SH) had its target price for A shares lowered from RMB 4.8 to RMB 4.