J.P. Morgan: Mainland air passenger traffic during the Mid-Autumn Festival and National Day consecutive holiday fell short of expectations; railways are accelerating their capture of market share.

J.P. Morgan released a research report stating that China's aviation industry underperformed the bank's expectations in terms of passenger traffic during the Mid-Autumn Festival and National Day consecutive holiday, with aviation continuing to lose share to railways rather than seeing a broad recovery in aviation demand. The bank maintained a cautious view, believing that demand is entering the off-season, that fuel surcharge increases may further suppress demand, and that elevated fuel costs continue to weigh on profitability. On individual stocks, the bank rates Air China Limited (00753) H-shares "Neutral" with a target price of HK$4.3; rates CHINA EAST AIR (00670) and CHINA SOUTH AIR (01055) H-shares "Underweight" with target prices of HK$2.6 and HK$2.7 respectively; and rates CATHAY PAC AIR (00293) "Overweight" with a target price of HK$16. The bank noted that, according to Ministry of Transport data, aviation carried 14 million passengers from October 1 to 6, down 1% year-on-year; railways carried 128 million passengers, up 12% year-on-year. Over the full seven-day holiday (October 1 to 7), total cross-regional passenger traffic was approximately 2.1 billion, or about 306 million per day, up only 1% year-on-year; of which railways accounted for 152 million passengers, up 13% year-on-year, while aviation accounted for 17 million passengers, or about 2.4 million per day, roughly flat year-on-year. The bank views this divergence as negative for aviation, especially on medium-haul domestic routes where high-speed rail is competitive on price, punctuality, and city-center convenience. Pricing data was mixed: FlightMaster and pre-holiday data showed domestic tax-inclusive fares up about 12% year-on-year, broadly in line with the bank's preview; however, VariFlight showed domestic gross fares down about 6% year-on-year from September 28 to October 4, reflecting weaker actual pricing during the core holiday period. From October 10, domestic fuel surcharges were raised to RMB 50 per ticket for short-haul routes (800 km or less) and RMB 90 for long-haul routes (over 800 km), which, together with the roughly RMB 50 airport construction fee, may suppress discretionary demand and weaken load factor recovery. The bright spot was outbound travel: Umetrip showed outbound ticket bookings exceeding 1.2 million, up about 4% year-on-year, and inbound bookings exceeding 1.1 million, up about 6% year-on-year. Cirium data showed Asia regional traffic leading the recovery, with South Korea flights up 20% year-on-year, and Thailand, Malaysia, Vietnam, and Singapore up 20%, 27%, 15%, and 11% respectively; Japan remained the main drag, with capacity down 54% year-on-year and still about 53% below 2019 levels.