China Eastern Airlines' 2023 performance loss narrowed. The company's revenue for the full year of 2023 was 113.74 billion yuan, up 145.6% year on year, achieving net profit of 8.17 billion yuan, of which revenue for the fourth quarter was 28.20 billion yuan, up 169.8% year on year, and realized net profit of 5.56 billion yuan.
Domestic passenger flow recovered rapidly, freight rates were strong, and revenue increased markedly. In 2023, the company's passenger traffic volume, passenger turnover (RPK), and usable seat kilometers (ASK) recovered to 88.7%, 82.2%, and 90.6% in the same period in 2019, respectively, and the passenger occupancy rate recovered to 74.4%, a decrease of 7.6 pct compared to 2019. Among them, RPK and ASK for domestic routes recovered to 104.9% and 116.4% respectively in 2019, and the domestic passenger occupancy rate recovered to 78.0%, a decrease of 5.03pct compared to 2019; RPK and ASK for international routes recovered to 39.1% and 43.8% in 2019, respectively. Competition in the industry eased in 2023, and the company's unit freight rate remained strong. Passenger kilometer revenue on domestic routes increased slightly compared to 2023 and 2019, and the company's passenger revenue in 2023 reached 104.58 billion yuan, a significant increase of 199% over the previous year. In terms of freight, freight rates declined due to factors such as the return of capacity in the abdominal cab of airliners, and the company's freight revenue reached 3.64 billion yuan, a decrease of 53% over the previous year.
Unit costs have been drastically reduced, and gross margin has changed from negative to positive. Due to the rapid recovery in supply and demand, the company's operating costs reached 112.46 billion yuan in 2023, an increase of 50.8% over the previous year. Among them, aviation fuel costs were 41.1 billion yuan, an increase of 84.9% year on year, and non-fuel costs were 71.36 billion yuan, up 36.3% year on year. Thanks to improvements in operating efficiency such as passenger occupancy rate and aircraft utilization, the company's various unit costs declined markedly year on year. Among them, the cost of aviation fuel per ASK was 0.168 yuan, down 27.4% year on year, and the unit ASK non-fuel cost was 0.291 yuan, down 46.5% year on year, thus driving the company's gross margin from negative to positive. In 2023, the depreciation of the exchange rate caused the company to lose 90 billion yuan in exchange. Assuming that risk variables other than the exchange rate remain unchanged, every 1% appreciation (or depreciation) of the RMB exchange rate against the US dollar on December 31, 2023 will result in a reduction (or increase) of the company's net loss of RMB 297 million.
Risk warning: Macroeconomic recovery falls short of expectations, sharp fluctuations in oil prices and exchange rates, safety incidents.
Investment advice: Maintain a “buy” rating.
Considering macroeconomic pressure, weak consumption, and slow recovery of international routes in 2024, we lowered our forecast for usable seat kilometers and passenger kilometers, which led to a reduction in profit forecasts. We expect the company's net profit to be 5.91 billion, 9.63 billion, and 12.91 billion yuan respectively in 2024-2026 (the adjustments for 24-25 were -55.1%/-48.3%, respectively). We are optimistic about the recovery trend of civil aviation in the medium to long term, and maintain a “buy” rating.