Equity Long-Short

Mo Aziz

Thematic (Sector/Industry)

<ul>
<li>Jet fuel price has declined in the past two months and is 20% lower than the September peak. Positive for airlines but we have yet to see any earnings upgrade   </li>
<li>All the Chines state carriers (Air China, China Eastern and China Southern) and Taiwan's EVA Airways are unhedged, benefiting the most from this lower fuel price trend </li>
<li>Worst off due to fuel hedge cover at higher than current market prices are Qantas Airways (75% hedged), Air New Zealand (54% hedged) and Japan Airlines (40% hedged)  </li>
</ul>


Jet fuel price has declined in the past two months and is 20% lower than the September peak. Positive for airlines but we have yet to see any earnings upgrade   
All the Chines state carriers (Air China, China Eastern and China Southern) and Taiwan's EVA Airways are unhedged, benefiting the most from this lower fuel price trend 
Worst off due to fuel hedge cover at higher than current market prices are Qantas Airways (75% hedged), Air New Zealand (54% hedged) and Japan Airlines (40% hedged)  


Lower Fuel Price, Which Asia Pacific Airline Benefits and Suffers the Most?

HK/China Equity Long-Short

Osbert Tang, CFA

<ul>
<li>The Chinese airlines are best placed to ride on lower US interest rates and the induced weakening of USD given heavy USD debt, which amounts to 17.7% of the total.</li>
<li>A 1% drop in USD interest rates will save Rmb1.2bn, and this is more than the total profit they have generated in 9M23. FY24 will be a big swing year.</li>
<li>This is an overlooked sector as their share prices have dropped by an average of 21.8% YTD. However, profits turned around and revenue surged tremendously in the period. </li>
</ul>


The Chinese airlines are best placed to ride on lower US interest rates and the induced weakening of USD given heavy USD debt, which amounts to 17.7% of the total.
A 1% drop in USD interest rates will save Rmb1.2bn, and this is more than the total profit they have generated in 9M23. FY24 will be a big swing year.
This is an overlooked sector as their share prices have dropped by an average of 21.8% YTD. However, profits turned around and revenue surged tremendously in the period. 


Chinese Airlines: Well Placed for a Reversal

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/swire-pacific-limited-class-a" target="_blank" data-smartkarma-citation="entities:10433:1" rel="noopener">Swire Pacific (19 HK)</a>'s 1H26 reported profit was HK$6.8bn versus HK$815mn in 1H25.</li>
<li>83%-Held <a href="https://www.smartkarma.com/entities/swire-properties-limited" target="_blank" data-smartkarma-citation="entities:5775:1" rel="noopener">Swire Properties (1972 HK)</a> reported profit of HK$3.6bn vs. a loss of HK$1.2bn in 1H25. 45.12%-held <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-limited" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific (293 HK)</a> reported a 71% increase in underlying profit of HK$6.2bn.</li>
<li>Note: short interest in Cathay, one the best performing global airlines over the past year (in terms of share price), has picked up since the end of May. </li>
</ul>



Swire Pacific (19 HK)'s 1H26 reported profit was HK$6.8bn versus HK$815mn in 1H25.
83%-Held Swire Properties (1972 HK) reported profit of HK$3.6bn vs. a loss of HK$1.2bn in 1H25. 45.12%-held Cathay Pacific (293 HK) reported a 71% increase in underlying profit of HK$6.2bn.
Note: short interest in Cathay, one the best performing global airlines over the past year (in terms of share price), has picked up since the end of May. 


On Swire (19 HK)'s 2026 Interim Results. Still Inexpensive

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/air-china-ltd-h" target="_blank" data-smartkarma-citation="entities:8239:1" rel="noopener">Air China Ltd (H) (753 HK)</a> has disposed of a 1.61% stake in <a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a> at HK$12.22. After this, it will remain CX's second-largest shareholder.</li>
<li>Assuming an end-Mar completion of Qatar Airways' stake buyback, EPS will be enhanced by 1.7% and 3.7%, respectively, slightly lower than previously estimated.</li>
<li>Sustained uptrend in passenger traffic and load factor will support earnings. With 16% ROE for FY25-27, its 1.3x 12-month forward P/B is inexpensive.</li>
</ul>



Air China Ltd (H) (753 HK) has disposed of a 1.61% stake in Cathay Pacific Airways (293 HK) at HK$12.22. After this, it will remain CX's second-largest shareholder.
Assuming an end-Mar completion of Qatar Airways' stake buyback, EPS will be enhanced by 1.7% and 3.7%, respectively, slightly lower than previously estimated.
Sustained uptrend in passenger traffic and load factor will support earnings. With 16% ROE for FY25-27, its 1.3x 12-month forward P/B is inexpensive.


Cathay Pacific (293 HK): Stay Positive Despite Small Disposal by Air China

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cathay-pacific-airways-ltd" target="_blank" data-smartkarma-citation="entities:243:1" rel="noopener">Cathay Pacific Airways (293 HK)</a>'s buyback of Qatar Airways' 9.57% stake should enhance its FY26F EPS and ROE by 4.6% and 0.36pp, respectively. </li>
<li>With passenger traffic and load factor continuing to recover, the consensus forecast of a 24.2% YoY earnings decline in 2H25 is too conservative, suggesting upside surprise. </li>
<li>Its FY25-27F ROE is a record since 2013, with potential to trade up to 1.65x P/B (30%+ upside). It is also possible to be included in the HSI again.</li>
</ul>



Cathay Pacific Airways (293 HK)'s buyback of Qatar Airways' 9.57% stake should enhance its FY26F EPS and ROE by 4.6% and 0.36pp, respectively. 
With passenger traffic and load factor continuing to recover, the consensus forecast of a 24.2% YoY earnings decline in 2H25 is too conservative, suggesting upside surprise. 
Its FY25-27F ROE is a record since 2013, with potential to trade up to 1.65x P/B (30%+ upside). It is also possible to be included in the HSI again.


Cathay Pacific (293 HK): Buyback of Qatar-Owned Shares Is Positive

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 (A) (601111 CH)

Lower Fuel Price, Which Asia Pacific Airline Benefits and Suffers the Most?

Jet fuel prices have been declining and this is good for airlines. The impact varies according to average flight length and fuel hedge exposure....

Mo Aziz

Chinese Airlines: Well Placed for a Reversal

Chinese airlines stand to benefit from lower US interest rates and a weaker USD due to their heavy USD debt. Despite a drop in share prices,...

Osbert Tang, CFA

On Swire (19 HK)'s 2026 Interim Results. Still Inexpensive

Despite the elevated implied stub, at 0.34x forward P/B, I still like Swire Pac. You could set up the stub or simply go outright long in Swire Pac...

David Blennerhassett

Cathay Pacific (293 HK): Stay Positive Despite Small Disposal by Air China

Air China sells stake in CX but remains the second-largest shareholder. EPS to be enhanced by 1.7-3.7% after Qatar Airways buyback. Traffic...

Osbert Tang, CFA

Cathay Pacific (293 HK): Buyback of Qatar-Owned Shares Is Positive

Cathay Pacific's buyback of Qatar Airways' stake is expected to boost both EPS and ROE for FY26 and FY27, supporting valuations. It may also be...

Osbert Tang, CFA

Price Gauge

52-week Range

Market Cap (USDm)

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Lower Fuel Price, Which Asia Pacific Airline Benefits and Suffers the Most?

​Jet fuel prices have been declining and this is good for airlines. The impact varies according to average flight length and fuel hedge exposure....

Mo Aziz

Chinese Airlines: Well Placed for a Reversal

​Chinese airlines stand to benefit from lower US interest rates and a weaker USD due to their heavy USD debt. Despite a drop in share prices,...

Osbert Tang, CFA

On Swire (19 HK)'s 2026 Interim Results. Still Inexpensive

Despite the elevated implied stub, at 0.34x forward P/B, I still like Swire Pac. You could set up the stub or simply go outright long in Swire Pac...

David Blennerhassett

Cathay Pacific (293 HK): Stay Positive Despite Small Disposal by Air China

​Air China sells stake in CX but remains the second-largest shareholder. EPS to be enhanced by 1.7-3.7% after Qatar Airways buyback. Traffic...

Osbert Tang, CFA

Cathay Pacific (293 HK): Buyback of Qatar-Owned Shares Is Positive

​Cathay Pacific's buyback of Qatar Airways' stake is expected to boost both EPS and ROE for FY26 and FY27, supporting valuations. It may also be...

Osbert Tang, CFA

Jet fuel prices have been declining and this is good for airlines. The impact varies according to average flight length and fuel hedge exposure....

Chinese airlines stand to benefit from lower US interest rates and a weaker USD due to their heavy USD debt. Despite a drop in share prices,...

Air China sells stake in CX but remains the second-largest shareholder. EPS to be enhanced by 1.7-3.7% after Qatar Airways buyback. Traffic...

Cathay Pacific's buyback of Qatar Airways' stake is expected to boost both EPS and ROE for FY26 and FY27, supporting valuations. It may also be...