Analysts are pointing to Hong Kong-traded Air China as the leading turnaround candidate among struggling Chinese airlines. China has been far slower than the U.S. to recover from the shock of the 2020-2023 pandemic as the world’s second-largest economy faces its own unique challenges. But among several analysts, ranging from DBS to Citigroup, Beijing-based Air China is the top pick for playing a sustained pickup in Chinese travel at home and abroad. Air China, part of United Airline ‘s Star Alliance group, “is the only Chinese network carrier serving all six continents across the globe, with a particularly strong presence in the profitable China-to-Europe and China-to-North America routes,” DBS analysts Jason Sum and Paul Yong said in a report Thursday. DBS maintained its buy rating, with a price target of 5.60 Hong Kong dollars (72 cents), implying upside of 13% from Air China’s close Friday. 753-HK 5Y line Air China 60% below peak While 2024 saw Hong Kong’s Hang Seng Index rally nearly 18%, Air China saw a more muted, low single-digit increase that left it trading more than 60% below its 2018 all-time high. That gives Air China a “significantly more attractive” valuation, close to its five-year pre-pandemic average, the DBS analysts said. “A stronger-than-expected generation of cash flows will enable the group to deleverage swiftly and repair its battered balance sheet.” The upcoming Lunar New Year, which runs from late January to early February, could provide a boost. Chinese booking site Trip.com noted that interest in international travel over the holiday is way up . Ticket demand for travel from mainland China to parts of Europe is up by about 50% from a year ago, while inbound demand has tripled, with travelers coming both from nearby Japan and the distant U.S., Trip.com said in a forecast Tuesday. Expanded visa-free travel Chinese authorities in recent months have expanded visa-free policies for travelers from several countries, including parts of Europe and, notably, Japan. Citi analysts in early December reiterated their buy rating on Air China, calling it their top travel stock pick among Chinese airlines. They expect the government’s economic policy will support consumption in the coming year. JPMorgan analysts in late November expressed similar optimism, citing Air China’s greater exposure to international travel than rivals, and its roughly 30% stake in Hong Kong-based Cathay Pacific . The analysts upgraded Air China to overweight from neutral — reversing a downgrade made in early October, according to FactSet. The JPM analysts also raised their price target to HKD5.90 based on expectations for significant improvement in earnings over the next two years. The JPM analysts also expect airlines to benefit from lower fuel costs if President-elect Donald Trump carries through on pledges to further reduce energy prices . U.S. airline stocks have outperformed the S & P 500 since early October, the JPMorgan analysts said. Back in early November, Goldman Sachs analysts had already named Air China a “main beneficiary” of increased business travel and resumption in long-haul flights. Goldman expects domestic air passengers grew by 11% in 2024, exceeding 2019 levels, and will expand by another 6% in 2025. The analysts see international traffic recovering to slightly more than 2019 levels in the year ahead. Still, Air China has a long way to go to catch up to its partner United, which closed at a new record in early December and soared 135% in 2024, its largest ever annual gain. Chicago-based United, which operates more international routes than any U.S. airline, has benefited from lower jet fuel costs and a continued recovery in post-pandemic travel demand. — CNBC’s Michael Bloom and Sean Conlon contributed to this report
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