China Southern Airlines announced its 2023 results: it achieved operating income of 159.929 billion yuan, an increase of 83.7% over the previous year, and a net loss of 4.209 billion yuan to the mother, a sharp decrease in losses over the previous year.
Losses fell sharply year over year in 2023. In 2023, the company achieved operating income of 159.929 billion yuan, an increase of 83.7% over the previous year, and a net loss of 4.209 billion yuan to the mother, a significant reduction in losses over the previous year. 2023Q4 lost a net loss of 5,529 billion yuan to its mother. We believe this was partly due to weak demand and high oil prices during the quarter, as well as investment losses due to the capital increase of Sichuan Airlines. Judging from the company's 2023 operating data: 1) The company's ASK recovered to 92% in 2019, with China/ international/ regions recovering to 113%/45%/56% respectively; 2) the company's RPK recovered to 87% in 2019, and its domestic/international/regional levels recovered to 106%/43%/56% respectively; 3) The company's passenger occupancy rate was 78.1%, down about 5 percentage points from 2019; 4) The company's passenger kilometer revenue was 0.55 yuan, up 13% from 2019. By the end of 2023, the company had a fleet of 908 aircraft.
Further restoration of international routes will help the company continue to improve its 2024 performance. The degree of recovery of international routes in 2023 was low, leading to a concentration of capacity in the domestic market, so passenger occupancy and utilization rates of aircraft did not fully recover. Affected by this, the company's unit cost in 2023 was still higher than in 2019. Looking ahead to 2024, with favorable factors such as the progress of air rights negotiations and the release of visa-free policy incentives, international flights continue to resume steadily (according to the 2024 summer and autumn season plan, international flights are expected to resume to about 80% in 2019). The current oversupply situation in the domestic market is expected to be further mitigated, passenger occupancy rates are expected to increase further, and unit costs are expected to decrease, thus driving profit improvement.
Maintain a “Highly Recommended” investment rating. In the short term, the company's operating data for January-January of this year continued to recover. RPK increased by about 10% compared to 2019, and the passenger occupancy rate increased slightly compared to 2019, mainly benefiting from the high boom in the Spring Festival travel season in February. Looking at the medium to long term, we believe that the company's north-south base layout and a relatively complete national second- and third-tier network are expected to enable the company to benefit from the recovery in aviation demand in the medium term and the expansion of main base airports. Considering that the domestic market's off-season performance was weaker than expected and international flights resumed, we updated our profit forecast. The company's net profit for 2024-26 is estimated to be 73/116/13.3 billion yuan, respectively, maintaining the company's “Highly Recommended” rating.
Risk warning: macroeconomic downside risk; demand falling short of expectations; sharp rise in oil prices; sharp depreciation of RMB.