Chinese carriers’ rising stars

 
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Since the stock market rally started in late March, many publicly-listed Chinese carriers have experienced a 50% increase in their share price, making Chinese carriers the best performing airline stocks in the world.

But what is the reason for this increase? It seems a bit unusual considering other airline stocks are still suffering due to the sharp fall in traffic.

There is also no indication that Chinese carriers – with the exception of Air China – are financially strong. In fact, China Southern and China Eastern have had to rely on government bail-outs.

Loss-making Shanghai Airlines, meanwhile, has had to merge. So why would investors buy into airlines that are losing money and are subject to government bail-outs?

Well there has been one positive change for the large publicly-listed Chinese carriers. The Civil Aviation Administration of China has made it clear that it supports the big three carriers and that it doesn’t think much of the small privately-owned carriers.

This means investors can be confident that if they buy into Air China, China Eastern or China Southern that these carriers will be around in future and that it is now less likely that new entrants will significantly dent their market share.   

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