core point
1. Industry attributes: The aviation industry is a typical large-cycle industry. It is affected by the four cyclical factors of supply, demand, oil and foreign exchange, and its operation fluctuates greatly. Globally, the industry is characterized by high investment, high risk, homogeneity, low return, and generally poor profitability and profit growth. However, under such an industry β, there are still typical cases of European and American low-cost aviation leaders creating long-term rich returns.
2. Demand analysis: Aviation demand has a long-term logic, and the growth rate is closely related to the macro economy. Only a big country can breed a large aviation market. Domestically, air travel is still high-end consumption. Based on the average air fare in China’s aviation industry in 2019 before the epidemic, the cost of a round-trip air trip accounted for about 40% of the monthly per capita disposable income. Naturally existing demand differences have differentiated the aviation industry into two major tracks: full-service and low-cost.
3. Full service: The full service track is dominated by the cycle attribute. Its major cycle is the demand cycle, and the demand determines the cycle range. The core of the business model is a strong monopoly. Buying cycles and buying patterns are two common strategies for investing in full-service airlines. From the practical experience of the global capital market, the buying cycle is a strategy with a higher winning rate, which is applicable globally and can be widely verified. The strategy of buying patterns, among the three major aviation markets in China, the United States and Europe, was only successful in the United States around 2011-2013, but the excess returns were limited after that. From the perspective of CR3 and CR5 alone, the concentration of China’s aviation industry far exceeds that of Europe, where the market structure is fragmented, and is even close to the US aviation market. However, in terms of the market share indicators of core hubs, there is a clear gap between the three major airlines in China and the United States. China’s full-service aviation currently has insufficient monopoly and is more suitable for buying cycles.
4. Low cost: The low-cost track has consumption attributes, long slopes and thick snow, and the strong are always strong. The core of the business model is high turnover. Although it is also affected by cyclical factors, the low-cost business model is more resilient and its growth is far more than cyclical. A low-cost investment strategy is to buy low-cost faucets that are in the growth phase. With cost advantages and more resilient business models, low-cost leaders can often maintain high profit margins and returns for a long time, grow against the trend in each round of crises, and bring long-term excess returns to investors. At present, China’s low-cost airline market is still in a period of development opportunities.
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