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CHINESE HOLIDAY DATA MAKES HSBC NERVOUS ABOUT BIG AIRLINES

The five-day Labour Day holiday is a big deal in China, and even though substantial fuel reserves mean the world's second largest economy is less exposed than many to the energy shock, higher costs still meant airline traffic lost ground to trains.

HSBC say in a recent note that "losses are now the base case" for Chinese airlines.

And that can't bode well for European and North American peers once summer holidays get going.

According to China's Ministry of Culture and Tourism, 325 million domestic trips were taken during the May 1-5 holiday, a rise of 3.6% over last year.

HSBC' citing data from "Flight Master" say that during the May 1-5 holiday, there was a 2.6% decline in air capacity in China, as carriers trimmed schedules to mitigate soaring jet fuel costs, but high prices for tickets meant demand fell even more. Daily average air traffic dropped 5.7% year on year.

In sharp contrast, daily railway traffic grew 4.6%, suggesting, HSBC say, overall travel appetite is still intact, but "with airlines’ domestic fuel surcharges jumping 6x since early April, price-sensitive leisure travellers appear to be pivoting to high-speed rail."

HSBC have 'reduce' ratings on the big three Chinese airlines Air China 601111.SS, 0753.HK China Eastern 600115.SS, 0670.HK and China Southern 600029.SS, 0780.HK

They have buy ratings on platforms Trip.com TCOM.O and Tongcheng 0780.HK because they benefit from the increase in travel while having asset-light models that insulate them from fuel shocks.

(Alun John)

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