Guotai Haitong: Maintains "Overweight" rating for aviation and oil transportation, with expectations for a resumption of negotiations improving as conflicts pause.

Guotai Haitong released a research report stating that it maintains an "overweight" rating on air transportation. 1) Aviation: The logic of a super cycle remains promising. The marketization of ticket prices and low supply growth will boost consumption, helping supply and demand continue to improve. Seize the opportunity at the bottom. 2) Oil transportation: If the Strait restores oil transportation and supply and demand return to high levels, the lifting of sanctions on Iran is expected to achieve super high prosperity that is sustainable. Recurrent geopolitical conflicts do not alter the medium and long-term logic; pay attention to counter-cyclical opportunities. The main points from Guotai Haitong are as follows: Aviation: The summer travel season is welcoming the peak passenger flow, and the "14th Five-Year Plan" will deepen the anti-involution and ensure low supply growth. 1) The summer travel market will see the highest passenger flow in early to mid-August, and the reduction in fuel surcharges will help release demand for family travel. Recently, the daily ticket issuance has set a historical record. It is estimated that passenger flow in the first week of August has increased by more than 7% year-on-year, with domestic passenger load factors reaching around 90%, and the year-on-year reduction in domestic oil-inclusive ticket prices has narrowed to single digits. 2) In August, the ex-factory price of domestic aviation fuel was 7,581 yuan, up 34% year-on-year, and down 6% month-on-month. Considering that the average price of aviation fuel in Singapore rose by more than 10% month-on-month in July, it is speculated that the National Development and Reform Commission will lower aviation fuel prices in August, which will alleviate operational pressure on airlines. It is expected that airline operations will see significant improvement in August. 3) The "14th Five-Year" civil aviation plan emphasizes "a unified domestic big market," aiming to "achieve a qualitative effective enhancement and a reasonable growth in quantity." The bank believes this will further deepen the anti-involution and ensure that supply continues to grow slowly. Future demand growth will drive supply and demand to improve continuously and lead to an upward trajectory in profitability. Pay attention to the timing of bottom positioning in aviation. Oil transportation: Temporary suspension of conflicts raises expectations for negotiation resumption, while reduced cargo volumes make it difficult to support further increases in freight rates. Last week, the volume of VLCC transits through the Strait of Hormuz and the Strait of Malacca continued to stay low. On August 2, U.S. President Trump announced the postponement of a new round of military actions against Iran, raising expectations for the resumption of shipping lanes, although specific implementation still needs to be tracked. In the short term, ongoing geopolitical conflicts continue to affect oil transportation demand. New cargo orders in the Middle East and the U.S. Gulf are limited, leading to a slight decline in VLCC TCE on routes from the U.S. Gulf to West Africa, although levels remain close to one-year period charter rates. 2) In the medium term: industry experts believe that it may be difficult to fully restore the Strait in the second half of the year, but restoration by early 2027 remains hopeful. If the Strait does reopen, oil transportation capacity utilization will return to pre-conflict high levels, with further advantages from LongJin's market control and inventory replenishment. 3) In the long term: If the U.S. lifts sanctions on Iranian oil, the compliant oil transportation market is expected to achieve super high prosperity that can be sustained for several years. The geopolitical situation appears to be cooling, and negotiations between the U.S. and Iran are expected to resume. Half-year report highlights: CATHAY PAC AIR posted significant earnings growth in the first half of the year, benefiting greatly from passenger flow overflow from the Middle East. CATHAY PAC AIR reported a net profit of 6.2 billion Hong Kong dollars for the first half of 2026, up 71% year-on-year. After excluding fuel hedging gains of 900 million yuan and non-operating gains of 1.4 billion yuan, the company still saw a year-on-year growth of about 21%, exceeding market expectations. It is estimated that in the first half of the year, the company fully passed on fuel costs, better than the 80-90% pass-through ratio of mainland carriers. The bank believes this is mainly due to the substantial benefits derived from the overflow of transit passengers while Middle Eastern hubs are closed. The company has ample rights to operate routes to Europe and the U.S., and Hong Kong has a superior geographical advantage as a transit hub for routes from India to the U.S. and Australia to Europe/UK. In Q2, the company's related routes experienced growth in both volume and price, driving a 12% year-on-year increase in ASK in the first half, with cabin load factors rising 2.7 percentage points to a new high of 87.5%, and passenger revenue increasing by 9% year-on-year. A similar positive effect can also be observed in the Q2 operations of major domestic airlines. China's civil aviation "14th Five-Year Plan" emphasizes "enhancing the function of international aviation hubs," and the combination of policy momentum and visa-free benefits, along with strict control of local international line subsidies by regulatory authorities, indicates an expectation of improved long-term profitability for international routes in the future. Risk warnings: Economic fluctuations, geopolitical oil prices, tariffs, exchange rates, safety incidents, etc.