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　　 Changjiang Securities Han Yichao

Event description:

　　 Air China The production and operation data of October were released. The sudden drop in international passenger demand led to a sharp decline in the passenger load ratio, and the growth rate of freight business was narrowed but still maintained a warming trend. Among them, RPK (passenger turnover) and ASK (available seat kilometers) changed by - 0.7% and+2.4% respectively year on year, while RFTK (cargo and mail turnover) and AFTK (available cargo and mail ton kilometers) increased by 6.1% and 3.3% respectively year on year; The passenger load factor and load factor changed by - 2.5 and+1.6 percentage points to 79.8% and 58.6% respectively year on year.

Event comment: The passenger demand was dragged down by international routes, and in the second half of the year, it showed negative year-on-year growth for the first time. Since the second half of the year, the RPK growth rate of the company has continued to decline, with a year-on-year decline of 0.7% to October. This is mainly due to the sharp year-on-year decline of 6.6% in international routes, which has lowered the overall trend, while the domestic routes have increased by 3.4%, showing a relatively good performance. The growth rate of ASK in October was 2.4%, which also slowed down significantly compared with the previous months. Among them, the ASK of international routes decreased by 5.1% year on year, mainly because the company timely reduced its capacity to reduce losses due to reasonable prediction of the trend of international passenger transport.

The cargo and mail business continued to recover, with the year-on-year growth rate falling back to a high level. The company's RFTK growth rate rose month by month after July, and exceeded the AFTK growth rate in August and September, showing a strong cargo and mail recovery trend. This trend continued in October, when the demand for cargo and mail was nearly 3 percentage points higher than the supply. However, compared with the single month growth rate of about 10% from July to September, the RFTK in October increased by 6.1% year on year, which narrowed somewhat. This may be due to the lack of stamina in the export of electronic products. It is expected that the cargo and mail business will continue to grow slightly in December.

The passenger load ratio declined by more than 80%, and the domestic drop was greater than the international drop. Due to the negative year-on-year growth of RPK, it is still difficult to avoid an increase in the gap between supply and demand caused by the oversupply despite the corresponding reduction of transportation capacity, and the passenger load factor dropped below 80%, down 2.5 percentage points to 79.8% compared with the same period last year. It is worth mentioning that as the growth rate of ASK on domestic routes reached 7.9%, 4.5 percentage points higher than the growth rate of RPK, the passenger load factor dropped 3.6 percentage points year on year; While the RPK of international routes dropped by 6.6%, ASK also dropped by 5.1 percentage points, so the passenger load factor only dropped by 1.2 percentage points year on year. The difference in transportation capacity is partly due to the company's transfer of part of the transportation capacity of international routes to domestic routes.

Investment suggestions:

Europe Japan routes will remain relatively weak in the fourth quarter, while the company's advantages in North America will continue to exceed expectations. In consideration of policy control and company planning, the delivery of transport capacity will continue to slow down, the investment in domestic routes will increase, and the load factor is expected to remain relatively high. The stable oil price and RMB appreciation in the fourth quarter are expected to benefit the company. We expect that the company's EPS in 2012-14 will be 0.38, 0.45 and 0.55 yuan respectively, and the corresponding PE will be 13, 11 and 9 times respectively, maintaining the rating of "prudent recommendation".

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