I. Why Aviation and Airports Are Worth Examining

Civil aviation is a rare industry that fuses national infrastructure, sovereign policy, industrial manufacturing, and consumer services into a single value chain. From the moment a plane pushes back from the gate to when it touches down in a foreign country, the journey implicates bilateral air-rights negotiations, slot resources, fuel supply chains, ground-handling capacity, and a continuous flow of thousands of precision components and ground-support systems.

Over the past five years, that chain endured a stress test of historical proportions. Three years of pandemic restrictions pushed international flights to near-standstill; the subsequent recovery exposed the industry's structural characteristics in sharp relief — international routes recovered far more slowly than domestic ones, long-haul more constrained than short-haul, and the supply side lagging the demand side throughout. Understanding that recovery rhythm is the prerequisite for understanding where the industry stands today and where it is heading.

This report makes no investment recommendation on any listed company. Its purpose is singular: to clarify the structural logic, recovery trajectory, competitive landscape, and principal risks of China's aviation-transport and airport sector on the basis of public data, and to identify the upstream opportunity in aerospace and aviation equipment manufacturing.

II. Sector Overview: From Cliff-Edge to All-Time High

The Pre-Pandemic Expansion Decade

Before 2019, China's civil aviation had spent a decade in high-speed expansion. International-route passenger volumes grew from roughly 19 million in 2010 to 74.25 million in 2019, a compound annual growth rate of 16.4%. International revenue passenger-kilometres over the same period roughly quadrupled, with the international share of total civil-aviation RPKs rising from 18.8% to 27.2%. Domestic carriers' combined international and regional passenger volumes grew at a 14.1% CAGR — slightly faster than the overall growth in resident cross-border travel.

In parallel, the hub-airport system took shape. By 2019, 93 of China's 238 commercial airports had opened international routes; only eight airports processed more than three million international passengers annually, and three — Shanghai Pudong, Beijing Capital, and Guangzhou Baiyun — jointly handled over 53% of total national international passenger throughput.

The Pandemic Shock: International Routes Near Zero

From early 2020, COVID-19 drove a near-global shutdown of international aviation. China's international routes were hit exceptionally hard under the nation's strict entry-management regime. According to Civil Aviation Administration of China (CAAC) data, full-year 2022 international passenger volume fell to 1.86 million — just 2.5% of 2019 levels. Domestic routes, though also pressured, rebounded earlier than international services due to differences in management timing and scale.

Post-Pandemic Repair: A Divergent Tempo

After the December 2022 policy shift, domestic routes bounced back rapidly. According to CAAC's 2023 Statistical Bulletin, the industry completed roughly 620 million passenger trips in 2023, up 146.1% year-on-year; total passenger RPKs reached 1,030.9 billion, up 163.4%. Domestic routes essentially recovered to 2019 levels within the year, while international routes lagged — full-year 2023 international passenger volume reached approximately 30 million, still below half of the 2019 baseline.

Recovery accelerated again in 2024. CAAC statistics show full-year passenger volumes surpassed 700 million — reaching 700.48 million — up 18.1% year-on-year and 10.7% above 2019, a civil-aviation all-time high. International-route passengers exceeded 60 million, up roughly 130% year-on-year, recovering to approximately 88% of 2019 levels. International passenger flights reached roughly 6,400 flights per week, or 84% of pre-pandemic levels.

Sources: CAAC 2023 Civil Aviation Industry Development Statistical Bulletin (caac.gov.cn); CAAC 2024 passenger-volume record announcement (caac.gov.cn, December 2024).

III. Industry Chain Structure: Four Players, Divergent Profit Profiles

The civil-aviation value chain has four core operational players: airlines, airports, air traffic control, and ground-service providers. Their business models and profit sensitivity differ sharply.

Airlines: High Cyclicality, High Leverage

Airlines are the most classic cyclical participants in the chain. Aviation fuel typically accounts for 30–40% of total costs, the single largest fixed expenditure; aircraft lease and depreciation, route landing fees, and crew compensation follow. The Big Three state-owned carriers — Air China, China Eastern, and China Southern — collectively handle around 60% of domestic passenger RPKs and an even higher share of long-haul international routes; combined domestic market share exceeds 60%.

The Big Three continued to face profitability headwinds after the pandemic. Based on public financial disclosures, 2024 revenues were approximately RMB 167 billion (Air China), RMB 174 billion (China Southern), and RMB 132 billion (China Eastern); net losses were approximately RMB 2.4 billion, RMB 17 billion, and RMB 42 billion respectively. The three carriers' combined net loss narrowed by roughly RMB 73 billion year-on-year to approximately RMB 62 billion.

Among private-sector carriers, Spring Airlines again ranked as the most profitable domestic airline in 2024, reflecting the structural advantage of a low-cost, narrow-body, short-to-medium-haul model focused on Japan, South Korea, and Southeast Asia — a pointed contrast to the wide-body losses weighing on the Big Three.

Sources: Air China, China Eastern, China Southern 2024 annual reports (via Sina Finance); Lianhe Credit 2024 Aviation Transport Sector Analysis Report (lhratings.com).

Airports: Infrastructure Character, Volume-Driven Recovery

Airports operate as infrastructure assets, earning aviation revenue (landing fees, parking fees, security charges — government-regulated pricing) alongside non-aviation revenue (commercial leases, food and beverage, parking — market-priced). The higher the non-aviation share, the more stable the airport's earnings profile.

In 2024 the Chinese hub-airport rankings saw a notable shift. Shanghai Pudong Airport posted full-year passenger throughput of 76.79 million, up 41% year-on-year, overtaking Guangzhou Baiyun Airport (76.37 million) to reclaim the top national position for the first time in years. Beijing Capital Airport ranked third at approximately 67.38 million. The hub hierarchy now sits in a new "Shanghai–Guangzhou–Beijing" configuration.

International passenger flows remain highly concentrated at the three top hubs. In international traffic specifically, the three gateways collectively handle over half of all national international passengers, with long-haul intercontinental flows even more concentrated.

Sources: CAAC 2024 National Civil Transport Airport Production Statistical Bulletin (caac.gov.cn); Jiemian News (Pudong/Baiyun 2024 throughput figures, January 2025).

Air Traffic Control and Ground Services: High Professional Barriers, Low Commercialization

Air traffic management is provided by the state and does not participate in commercial competition. Ground-service operations at major airports are handled either by CAAC-licensed specialist companies or by airline-owned service units, covering baggage handling, aircraft towing, refueling, and passenger transfer. During the pandemic, large-scale workforce attrition at some airports created a capacity mismatch between flight resumption and ground-handling coverage — a phenomenon particularly acute at European, American, and Japanese airports that contributed to the slower-than-expected international recovery in 2023.

IV. Demand Drivers and Industry Cycles

The Middle-Income Cohort Is the Core Demand Engine

Aviation demand is closely correlated with disposable income. China's middle-income group already exceeded 400 million people by 2020; the State Council Development Research Center has projected that figure will reach over 700 million by 2030. Rising per-capita outbound travel frequency and increasing aviation penetration among this cohort form the long-term demand floor for international routes. From 2010 to 2019, domestic resident cross-border travel grew at a roughly 13.3% CAGR annually; the aviation share of those trips rose from approximately 6.8% to 12.7%.

Tourism Is the Primary International-Route Demand Driver

Before the pandemic, tourism constituted the majority of outbound demand, with aviation accounting for approximately half of all outbound travel modes. Golden Week and the summer peak season represent the key international-route volume windows. In the 2024 summer transport period alone, total civil-aviation passenger volumes reached 140 million, a record high — up 17.7% versus 2019.

Cyclical Volatility: The Triple Drag of Fuel, FX, and Fares

Airline profitability is acutely sensitive to three variables.

First, jet fuel. Fuel accounts for 30–40% of total costs; in 2024, the Big Three's combined fuel expenditure remained elevated — Air China approximately RMB 46.7 billion, China Southern approximately RMB 52.0 billion, and China Eastern approximately RMB 41.1 billion, each representing 34–37% of their respective total costs.

Second, foreign-exchange rates. Aircraft leases and US-dollar-denominated debt are settled in US dollars; renminbi depreciation directly inflates financial costs.

Third, ticket prices. Average domestic economy-class fares fell more than 10% year-on-year in 2024, with average revenue per passenger-kilometre declining roughly 12.5% — one of the primary contributors to the Big Three's continued losses.

Sources: Lianhe Credit 2024 Aviation Transport Sector Analysis Report (lhratings.com); Big Three 2024 annual reports.

The Global Frame: Two IATA Data Points

From a global perspective, IATA data provides a useful reference. In 2023, global international-route RPKs recovered to 88.6% of 2019 levels, while global domestic RPKs already exceeded 2019 levels by 3.9%. In 2024, total global passenger volumes grew 10.4% versus 2023 and surpassed the 2019 historical peak by 0.5% for international routes; the global average seat-load factor reached 83.5%, a new record high. China's international recovery trajectory broadly tracks the global pattern, though it lags the Asia-Pacific average slightly, primarily on sensitive long-haul routes such as China–US and China–Japan.

Source: IATA Global Air Passenger Demand Report 2024 (iata.org, January 2025).

V. Competitive Landscape

The Big Three's Division of Labor

The domestic aviation market exhibits a "Big Three dominant, private carriers differentiated" structure. In 2019, the three central-government carriers collectively handled roughly 60% of all domestic passenger RPKs, and their share of international routes was even higher.

Their international networks have distinct regional emphases. Air China holds a clear advantage on long-haul European and North American routes — its European route share exceeds the combined share of China Eastern and China Southern — reflecting its historical accumulation of scarce long-haul air rights. China Eastern leads in Japan/South Korea and the Greater China region, with a 37% share in Japan–South Korea traffic. China Southern dominates Oceania and Southeast Asia, though because those corridors are fully open (high aviation-rights openness, intense low-cost competition), yields are structurally lower than on European and North American routes.

Domestic vs. Foreign Carriers: Roughly Equal

By 2019, domestic and foreign carriers held roughly equal shares of passengers originating from China on international routes. By region, domestic carriers dominated Oceania; foreign carriers dominated the Middle East and Africa; most other regions were evenly split.

Hub Airport Competition

The primary competitive dimension among hub airports is the contest for long-haul intercontinental traffic. China's air-rights classification framework restricts the origin cities for long-haul international routes (Type-2 long-haul) to a small number of core hubs, giving Beijing and Shanghai a structural policy advantage on Europe–Americas–Australia corridors. As capacity at western hubs such as Chengdu Tianfu and Chongqing Jiangbei continues to expand, the conditions for central and western cities to secure more direct intercontinental routes are gradually forming.

VI. Risks and Research Institute Assessment

The Principal Risks Today

Fuel prices are the single heaviest variable hanging over the airlines. Given the Big Three's current cost structure, a 10% rise in fuel costs could add over RMB 10 billion to their annual expense base. Increased frequency and magnitude of volatility in global energy markets make this risk difficult to hedge in the near term.

International routes still carry a recovery gap. By end-2024, international flight frequencies had recovered to 84% of pre-pandemic levels, and route count to 68.2%. Long-haul China–US, China–Japan, and China–Australia routes continue to lag short-haul recovery, constrained by the pace of air-rights negotiations and phased bilateral relationship dynamics. CAAC has set a 2025 target of recovering international flight volumes to over 90% of pre-pandemic levels.

Downward pressure on ticket prices. Intensifying domestic route competition combined with high-speed rail expansion continues to press economy-class fares. Whether the Big Three can offset falling passenger yields through higher-value premium cabin and cargo revenue is the decisive factor in their return to profitability.

Cargo is currently the most consistent bright spot. In 2024, the industry completed 8.98 million tonnes of cargo and mail, up 22.1% year-on-year, with international cargo showing both volume and yield improvement, partially offsetting passenger-side losses.

Research Institute Assessment

The long-term logic of Chinese civil aviation has not changed: the middle-income cohort is expanding, outbound travel penetration still has room to grow, and hub airport infrastructure continues to be built out. Those three facts constitute the sector's long-term foundation. Near-term profitability pressure stems primarily from the squeeze between elevated fuel costs and declining ticket prices, compounded by the structural lag of international routes behind demand.

Once international routes normalize, the cost-dilution effect of wide-body aircraft will become apparent and the Big Three's loss position has a credible path to reversal. This is not a structural industry failure — it is the turbulence of a repair cycle. The two key variables to watch are: when fuel prices moderate, and when air-rights negotiations break through on China–US and China–Japan routes.

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Data Sources

  • Tianxia Gongchang (aerospace and aviation equipment manufacturer directory and industry data)
  • CAAC, 2023 Civil Aviation Industry Development Statistical Bulletin (caac.gov.cn, published May 2024)
  • CAAC, 2024 National Civil Transport Airport Production Statistical Bulletin (caac.gov.cn, published March 2025)
  • CAAC, 2024 Passenger Volume Record Announcement (caac.gov.cn, December 2024)
  • IATA, Global Air Passenger Demand Reaches Record High in 2024 (iata.org, January 2025)
  • IATA, Global Outlook for Air Transport, June 2024 (iata.org)
  • Lianhe Credit, 2024 Aviation Transport Sector Analysis Report (lhratings.com)
  • Air China, China Eastern Airlines, China Southern Airlines 2024 Annual Reports (company websites and Sina Finance)
  • The Paper: Civil aviation industry achieves full-year 2024 turnaround to profitability (thepaper.cn, January 2025)
  • Jiemian News: China passenger throughput top-ranked airport changes hands (jiemian.com, January 2025)