Air China announced 2024H1 results: the company achieved operating income of 79.52 billion yuan in the first half of the year, an increase of 33.39% over the previous year; net loss to mother was 2.782 billion yuan, and a loss of 3.451 billion yuan in the same period last year.

Q2 losses increased year over year. The company achieved operating income of 79.52 billion yuan in the first half of the year, a year-on-year increase of 33.39%, a net loss of 2.782 billion yuan, and a loss of 3.451 billion yuan in the same period last year; of these, Q2's revenue was 39.455 billion yuan, up 14.21% year on year, a net loss of 1.108 billion yuan, and a net loss of 0.524 billion yuan in the same period last year, and the loss increased. By business segment, in the first half of the year, the company's passenger revenue was 73.137 billion yuan, up 31.85% year on year; freight revenue was 3.328 billion yuan, up 136.08% year on year; other revenue was 3.055 billion yuan, up 11.74% year on year. Furthermore, in the first half of the year, the company recorded an investment income of 1.2 billion yuan, and China Thai Airways contributed 1.067 billion yuan.

The occupancy rate and utilization rate were restored year-on-year, and unit costs decreased. Judging from operating data, the first half of 2024:

1) The company's ASK/RPK was +33%/50% year over year, and passenger occupancy rate increased 9 percentage points year over year; 2) domestic ASK/RPK was +10%/23% year over year, and domestic passenger occupancy rate increased 9 percentage points year over year to 80.7% year over year; 3) international ASK/RPK increased by 15 percentage points year on year to 76.3%; 4) The daily utilization rate of the company's aircraft was 8.79 hours, up 1 hour year on year. Benefiting from the restoration of occupancy rates and utilization rates, the company's unit ASK cost fell 2% year on year in the first half of the year, and the cost per unit of fuel withholding decreased 5% year on year.

Passenger kilometer revenue declined significantly year over year. In the first half of the year, the company's passenger kilometer revenue was -12% to 0.54 yuan, with China internal flights -7% year-on-year and -37% year-on-year for international flights. We believe that the year-on-year decline in domestic passenger traffic is mainly due to: 1) in 2023, as the first year of travel recovery, passenger demand was concentrated, and supply and demand were in the process of recovering. Supply and demand jointly drove up ticket prices, forming a high base for this year; 2) the aviation market had a sharp low season in the first half of this year, and the off-season was affected by factors such as weak business travel, which dragged down fare performance. The decline in international ticket prices is due to the steady restoration of international flights, driving international fares back to normal levels.

The card slot is a high-quality core hub, and its long-term advantages remain the same. Considering the weak level of domestic ticket prices this year, we expect the company's net profit to be -0.4/4.2/7.8 billion yuan in 2024-26, downgrading the company's rating to “increase holdings”. It is recommended to focus on the recovery of business travel demand and the progress of the resumption of international flights. In the long run, we believe that the company's four-sided diamond-shaped airport hub, mainly Capital Airport, covers the most economically developed and densely populated area in China. It is a core hub with high-quality card slots. It is expected that it will continue to benefit from business travel and the restoration of international long-haul routes.

Risk warning: macroeconomic downside risk; demand falling short of expectations; sharp rise in oil prices; sharp depreciation of RMB.