Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Thematic (Sector/Industry)

After a hiatus, we have updated our Travel Tracker to reflect activity through September 11th. While average hotel room rates in the region have continued to recover, airport departure activity seems to have stalled after a steady improvement over the Summer. This is true for most locations we track, including the four Mainland Chinese airports that have led the surge in activity since April. Stagnant traffic may simply reflect normal seasonal patterns, however.While Chinese domestic travel demand continues to recover, the data suggest that recovery may be taking a breather. And outside of China travel activity remains virtually non-existent.

After a hiatus, we have updated our Travel Tracker to reflect activity through September 11th. While average hotel room rates in the region have continued to recover, airport departure activity seems to have stalled after a steady improvement over the Summer. This is true for most locations we track, including the four Mainland Chinese airports that have led the surge in activity since April. Stagnant traffic may simply reflect normal seasonal patterns, however.While Chinese domestic travel demand continues to recover, the data suggest that recovery may be taking a breather. And outside of China travel activity remains virtually non-existent. 

TRACKING TRAFFIC's Travel Tracker Dashboard (September 11): Room Rates Up, But Air Activity Stalled

Equity Bottom-Up

Tongcheng Travel Holdings  / Equity Bottom-Up

Not surprisingly, online travel agency (OTA) <a href="https://www.smartkarma.com/entities/tongcheng-elong-holdings-ltd" target="_blank" data-smartkarma-citation="entities:27363:1" rel="noopener">Tongcheng-Elong Holdings Ltd (780 HK)</a> reported substantial YoY declines in revenue and earnings in Q220, though market conditions and results were better than in Q120, when Covid19 and the government's response brought travel to a halt.
Tongcheng-ELong's revenue mix has changed as a result of the pandemic, in both positive and negative ways. While it's positive to see increased revenue from advertising and continued strength in its position in smaller cities, we believe the cessation of international travel hurts profitability. In addition, high fixed operating expenses also hit earnings in the second quarter.
As domestic travel normalized in the months following the peak of the pandemic in China, Tongcheng-ELong's shares have rallied by over 60%. Given the moderating pace of the recovery in Chinese travel demand, and stubbornly high operating expenses, we do not expect Tongcheng-ELong's earnings to suddenly 'snap back' in H220.

Not surprisingly, online travel agency (OTA) Tongcheng-Elong Holdings Ltd (780 HK) reported substantial YoY declines in revenue and earnings in Q220, though market conditions and results were better than in Q120, when Covid19 and the government's response brought travel to a halt.
Tongcheng-ELong's revenue mix has changed as a result of the pandemic, in both positive and negative ways. While it's positive to see increased revenue from advertising and continued strength in its position in smaller cities, we believe the cessation of international travel hurts profitability. In addition, high fixed operating expenses also hit earnings in the second quarter.
As domestic travel normalized in the months following the peak of the pandemic in China, Tongcheng-ELong's shares have rallied by over 60%. Given the moderating pace of the recovery in Chinese travel demand, and stubbornly high operating expenses, we do not expect Tongcheng-ELong's earnings to suddenly 'snap back' in H220.

Tongcheng-ELong (780 HK) Q2 Results Reflect Changing Travel Patterns, Stubbornly High OpEx

HK/China Equity Long-Short

Osbert Tang, CFA

Given their significant USD debt and the high gearing of the Chinese airlines, they are the prime beneficiaries of the recent appreciation of the Rmb against the USD. Since end-Jun, the Rmb has appreciated by some 3.5% against the USD; and this will potentially reduce their losses significantly when they report the 3Q20 result by end-Oct.Among the Big Three, we think <a href="https://www.smartkarma.com/entities/china-southern-airlines-co-ltd" target="_blank" data-smartkarma-citation="entities:1078:1" rel="noopener">China Southern Airlines (1055 HK)</a> is the best exposed to such Rmb/USD trend. It has the most USD debt (Rmb60.5bn) and the least USD cash on hand (Rmb331m). It also has the fewest international routes, meaning that USD operating receipts is the less. At the current Rmb/USD level, it may report as much as Rmb2bn of exchange GAIN in 3Q20. With its loss of just Rmb2.9bn in 2Q20 and much better traffic in 3Q20, the question is now whether CSA will make a profit, instead of how much loss reduction in 3Q20, in our view.

Given their significant USD debt and the high gearing of the Chinese airlines, they are the prime beneficiaries of the recent appreciation of the Rmb against the USD. Since end-Jun, the Rmb has appreciated by some 3.5% against the USD; and this will potentially reduce their losses significantly when they report the 3Q20 result by end-Oct.Among the Big Three, we think China Southern Airlines (1055 HK) is the best exposed to such Rmb/USD trend. It has the most USD debt (Rmb60.5bn) and the least USD cash on hand (Rmb331m). It also has the fewest international routes, meaning that USD operating receipts is the less. At the current Rmb/USD level, it may report as much as Rmb2bn of exchange GAIN in 3Q20. With its loss of just Rmb2.9bn in 2Q20 and much better traffic in 3Q20, the question is now whether CSA will make a profit, instead of how much loss reduction in 3Q20, in our view.

Chinese Airlines: The Key Plays on Rmb Appreciation, with China Southern Being the Best

Guangzhou Baiyun International Airport / Equity Bottom-Up

In Aug, <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" rel="noopener">Guangz</a><a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" rel="noopener">hou Baiyun International Airport (600004 CH)</a> recorded the first YoY growth in domestic aircraft with an 8.8% YoY increase. This is an encouraging figure as it reflected solid underlying travel demand. Although domestic passenger throughput was still in the negative zone (-7.3% YoY), it has further narrowed from -13.1% YoY in Jul. Overall, we consider GBIA's Aug traffic a solid show.In our view, the next key datapoint to watch is the National Day holiday traffic figure, since the Sep figures are likely to be less indicative right after the peak summer travel season. We believe the National Day holiday figures for GBIA are likely to be very solid, given the pent-up demand, government's push for "internal circulation" and impending re-opening of personal travel permit to Macau.

In Aug, Guangzhou Baiyun International Airport (600004 CH) recorded the first YoY growth in domestic aircraft with an 8.8% YoY increase. This is an encouraging figure as it reflected solid underlying travel demand. Although domestic passenger throughput was still in the negative zone (-7.3% YoY), it has further narrowed from -13.1% YoY in Jul. Overall, we consider GBIA's Aug traffic a solid show.In our view, the next key datapoint to watch is the National Day holiday traffic figure, since the Sep figures are likely to be less indicative right after the peak summer travel season. We believe the National Day holiday figures for GBIA are likely to be very solid, given the pent-up demand, government's push for "internal circulation" and impending re-opening of personal travel permit to Macau. 

Guangzhou Baiyun Intl Airport (60004 CH): Finally, in Aug, YoY Growth...

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/156/498/original/BANNER-TOURISM.png?1598998817" class="editor-image img-responsive" data-smartkarma-image-id="156498"></figure>
Chinese outbound travel remained stagnant in July. We will watch closely to see if relaxed travel restrictions in a few markets result in a surge in outbound travel activity. 
Meanwhile, Chinese domestic travel demand continued to recover in July, though activity remains far below 2019 levels. There is evidence consumers are opting for cheaper modes of travel, and this appears to benefit rail, highway, and Low Cost (air) Carriers. 
Given the July numbers and our admitedly pessimistic outlook, it's difficult to get excited about shares of most Chinese travel service providers. We remain negative on Trip.com but think stocks of hotel chain Huazhu Group and the LCCs could outperform peers in the near-term.


Chinese outbound travel remained stagnant in July. We will watch closely to see if relaxed travel restrictions in a few markets result in a surge in outbound travel activity. 
Meanwhile, Chinese domestic travel demand continued to recover in July, though activity remains far below 2019 levels. There is evidence consumers are opting for cheaper modes of travel, and this appears to benefit rail, highway, and Low Cost (air) Carriers. 
Given the July numbers and our admitedly pessimistic outlook, it's difficult to get excited about shares of most Chinese travel service providers. We remain negative on Trip.com but think stocks of hotel chain Huazhu Group and the LCCs could outperform peers in the near-term. 

TRACKING TRAFFIC/Chinese Tourism: Outbound Still Stagnant | Domestic Rebound Suggests Wary Consumer

China

Air China Limited provides passenger, cargo, and airline-related services in China.  The Company is primarily based in Beijing and a major hub for domestic and international air transportation.  Air China's airline-related services include aircraft maintenance, repair, overhaul service, ground services, and in-flight catering services.

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Air China Ltd (H) (753 HK)

TRACKING TRAFFIC's Travel Tracker Dashboard (September 11): Room Rates Up, But Air Activity Stalled

After a hiatus, we have updated our Travel Tracker to reflect activity through September 11th.

Tracking Traffic

Tongcheng-ELong (780 HK) Q2 Results Reflect Changing Travel Patterns, Stubbornly High OpEx

point 1 point 2 point 3 conclusions

Tracking Traffic

Chinese Airlines: The Key Plays on Rmb Appreciation, with China Southern Being the Best

In our view, the question will be whether CSA will make a profit in 3Q20

Osbert Tang, CFA

Guangzhou Baiyun Intl Airport (60004 CH): Finally, in Aug, YoY Growth...

In Aug, Guangzhou Baiyun International Airport (600004 CH) recorded the first YoY growth in domestic aircraft with an 8.8% YoY increase. This is an...

Osbert Tang, CFA

TRACKING TRAFFIC/Chinese Tourism: Outbound Still Stagnant | Domestic Rebound Suggests Wary Consumer

Chinese outbound travel remained stagnant in July. We will watch closely to see if relaxed travel restrictions in a few markets result in a surge...

Tracking Traffic

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