Analysts point to Air China, whose shares are traded in Hong Kong, as the main candidate for a turnaround among struggling Chinese airlines. China has been much slower than the United States in recovering from the shock of the 2020-2023 pandemic, as the world's second-largest economy faces its own unique challenges. But among many analysts, from DBS to Citigroup, Beijing-based Air China is considered the top pick for a sustainable recovery in Chinese travel at home and abroad. Air China, part of United Airlines' Star Alliance group, is “the only Chinese airline serving all six continents worldwide, with a particularly strong presence on profitable routes from China to Europe and from China to North America,” he said. DBS analysts Jason Sum and Paul Yeung in a report on Thursday DBS maintained its buy rating, with a target price of HK$5.60 (72 cents), suggesting a 13% upside from Air China's close. Friday 753-HK 5Y Air China Line 60% Below Peak While 2024 has seen Hong Kong's Hang Seng Index rise nearly 18%, Air China has seen a more subdued, low-single-digit increase that puts its trade at 60% below all-time. This gives Air China a “significantly more attractive” valuation, close to its pre-pandemic five-year average, DBS analysts said “This is expected to enable the group to quickly reduce its debt and repair its damaged balance sheet.” The upcoming Lunar New Year, which runs from late January to early February, could provide a boost. Chinese booking site Trip.com noted that interest in international travel during the holiday has risen. Demand for tickets from mainland China to parts of Europe is up about 50% from a year ago, while domestic demand has tripled, with travelers coming from neighboring Japan and the distant United States, Trip.com said in a forecast on Tuesday. Expanding visa-free travel Chinese authorities have in recent months expanded visa exemption policies for travelers from many countries, including parts of Europe and, in particular, Japan. Citi analysts in early December reiterated a buy rating for Air China, calling it a top travel stock pick among Chinese airlines. They expect the government's economic policy to support consumption next year. JPMorgan analysts in late November expressed similar optimism, noting Air China's greater exposure to international travel than rivals, and its roughly 30% stake in Hong Kong-based Cathay Pacific. Analysts upgraded Air China to overweight from neutral — reflecting a downgrade made in early October, according to FactSet. JPM analysts also raised their price target to HK$5.90 based on expectations of significant improvement in earnings over the next two years. JPM analysts also expect airlines to benefit from lower fuel costs if President-elect Donald Trump follows through on his pledges to lower energy prices further. JP Morgan analysts said US airline stocks have outperformed the Standard & Poor's 500 index since early October. Back in early November, Goldman Sachs analysts had already described Air China as a “major beneficiary” of increased business travel and the resumption of long-haul flights. Goldman expects the number of domestic air passengers to grow 11% in 2024, surpassing 2019 levels, and will expand another 6% in 2025. Analysts see international traffic recovering to levels slightly above 2019 levels next year. However, Air China still has a long way to go to catch up with partner United, which closed at a new record high in early December and is up 135% in 2024, its biggest annual gain ever. Chicago-based United, which operates more international routes than any U.S. airline, has benefited from lower jet fuel costs and a continued rebound in travel demand after the pandemic. — CNBC's Michael Bloom and Sean Conlon contributed to this report
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Air China has been singled out as a prime candidate for recovery among struggling mainland airlines
