Next catalyst is National Day holiday; vaccines may bring further upside
We are encouraged by China's continued air traffic recovery in July and August, despite second COVID-19 outbreaks in Beijing and Xinjiang. We forecast domestic passenger numbers to recover to flat levels YoY during China's National Day holiday in October (compared with >40% YoY decline YTD), which could be the next catalyst. We think the current low oil price and renminbi appreciation are favourable to Chinese airlines, and believe any meaningful progress on the ongoing vaccines' clinical trials may lift market sentiment.
Domestic recovery continues
According to Flight Master, the YoY decline in domestic air passenger numbers narrowed to 19% in August 2020, from 27% in July. We attribute this to good control of the second COVID-19 outbreak and "zero-case" target in China, and increased leisure and business travel demand in summer.
Encouraging progress on potential COVID-19 vaccines
On 5 September, two potential COVID-19 vaccines developed by Chinese companies were displayed at the China International Fair for Trade in Services in Beijing. Based on our channel checks, employees at Chinese airlines can apply to participate in clinical trials for potential vaccines as volunteers. We think any meaningful progress in the COVID-19 vaccines will help accelerate travel demand recovery and lift market sentiment.