The recent introduction of visa-free entry for foreigners has catalyzed a notable resurgence in both international and regional air travel demandAs a result, domestic airports across the region, specifically listed airport companies, are witnessing a continued recovery in passenger throughputWhile the rebound in duty-free operations remains uncertain, preliminary forecasts from these companies indicate record highs in cash flows from operational activities for the first three quarters of 2024, evidencing a comprehensive performance restoration.

Analysts predict that net profits, adjusted for non-recurring gains and losses, will reach between 296 million and 356 million yuan in 2024, marking an impressive year-on-year increase of approximately 289.24% to 327.59%, effectively ending a three-year streak of losses.

The completion of the Shenzhen-Zhongshan Link has proven beneficial for Shenzhen AirportBoth Baiyun Airport and Shenzhen Airport are continuously refining their cost structures, with growth in cost and expenses trailing significantly behind revenue increasesAs airport operations gradually ramp up, the net cash flow from operational activities has seen an upswing, leading to an overall improvement in financial health.

However, the duty-free sector remains sluggish amid changes in market dynamics and competitive landscapesShanghai Airport, for instance, has reported positive trends in its transport data throughout the fourth quarter of 2024, with total passenger throughput showing an upward trajectory and the number of international and regional passengers reaching 96% of levels recorded in December 2019.

The upward trend in passenger throughput continues unabatedAs of January 21st, Baiyun Airport projects a net profit—after excluding non-recurring elements—between 808 million and 993 million yuan for 2024, an increase of 111.19% to 159.54% compared to the previous year

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The firm anticipates recording 512,000 take-offs and landings, serving 76.37 million passengers and handling 2.38 million tons of cargo and mail in 2024, reflecting increases of 12.25%, 20.89%, and 17.30%, respectivelyThis influx has consequently bolstered both aviation and non-aviation revenues for the company.

Nationwide, the civil aviation sector expects to surpass 700 million passenger trips in 2024, reflecting an 18.1% increase year-on-year, and a 10.7% rise compared to 2019 figuresShenzhen Airport marked a remarkable milestone by crossing the 60 million passenger threshold for the first time, achieving a 16.6% increase in passenger flow and a 17.6% increase in cargo throughput year-on-year.

On January 18th, Shenzhen Airport estimated a significant recovery, projecting net profits between 296 million and 356 million yuan, indicative of a drastic turnaround from previous financial struggles.

In line with the Greater Bay Area integration, Shenzhen Airport has initiated its first dual-city terminal in collaboration with Hong Kong, enhancing its operational reach across seven cities, including Huizhou and Dongguan, thus expanding the total number of city terminals to 25. The airport aims to develop a comprehensive infrastructure comprising three terminal areas, three runways, and a satellite hall.

Shanghai Airport has consistently reported favorable transport data throughout the last quarter of 2024. In the months of October, November, and December, total passenger throughput increased by 23%, 21%, and 20%, respectively, compared to the previous yearWhen compared to October of 2019, passenger numbers on domestic routes saw growth rates of 23%, 14%, and 19% in the corresponding months of 2024.

International and regional routes represent a critical segment for Shanghai Airport, accounting for approximately 51% of total passenger volume in 2019. The recovery in total throughput for these routes remains underway, with passenger numbers in October 2024 returning to 89% of 2019 levels, incrementally improving to 89% in November and peaking at 96% in December.

In December 2024, new regulations from the State Immigration Administration aimed at encouraging foreign tourism exemplified the government's commitment to expanding openness, facilitating foreign entry to China and subsequently boosting air travel demand

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Through November 2024, the nation recorded 29.218 million entries by foreigners across various ports, reflecting an impressive 86.2% increase from previous figures.

China Securities emphasized that this policy illustrates the government’s dedication to amplifying the open-door policy and signifies enhanced convenience for foreign nationals traveling to China, which is expected to stimulate a steady uptick in international flight operations.

Turning to cash flows, Shenzhen Airport reported a record net cash flow from operating activities amounting to 1.605 billion yuan in the first three quarters of 2024, nearly doubling from the 840 million yuan recorded during the same period in 2019 pre-pandemicAs business volumes steadily increase, improvements in cash flow are anticipated, leading to augmented financial stability moving forward.

Airports have been optimizing their operations by expanding international business dimensions, increasing profitability per transaction, and improving resource allocationsBy delivering more unique and competitive products and services to airlines, passengers, and stakeholders, these airports aim to enhance their commercial asset value and attract more international brand partnerships.

In the first three quarters of 2024, both Pudong and Hongqiao airports saw accelerated recovery in aviation operations, with passenger flow expanding faster than cargoCombined, the two airports processed 93.43 million passengers, with international passengers comprising 22.3% of this numberNevertheless, the structural recovery of overseas flights and international passenger numbers is yet to be fully realized, which continues to temper the pace at which aviation revenues can grow.

The gross profit margin for Shanghai Airport in this period was recorded at 22.56%, showing a rise of 6.05 percentage points from last year, but still significantly lower than pre-pandemic levels due to adjustments in duty-free rates and ongoing market pressures

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Sales from duty-free outlets surged nearly 60% year-on-year, although revenue from duty-free rents declined by 30%.

The duty-free sector's operating channels have evolved from predominantly border duty-free to a multi-channel framework encompassing offshore, border, city, and e-commerce avenues, intensifying competitive pressures in the port duty-free marketA new supplementary agreement between Shanghai Airport and China Duty-Free will see short-term reductions in airport duty-free rental income under certain sales conditions.

Conversely, Shanghai Airport achieved significantly improved cash flow, generating a net cash flow of 3.804 billion yuan from operating activities in the first three quarters of the year, which surpasses the 3.704 billion yuan* garnered during the pre-pandemic periodThe airport plans to distribute a midpoint profit allocation of 249 million yuan in 2024, with a cash dividend ratio reaching 30.54%.

For Baiyun Airport, the first three quarters of 2024 saw a gross profit margin of 27.06%, up by 6.78 percentage points from the previous yearThe cash flow from operating activities also exceeded historical averages at 2.783 billion yuan, indicative of a robust recovery from the 2.444 billion yuan figure of 2019. The management intends to raise up to 1.6 billion yuan through a private placement of shares to strengthen liquid assets, with cash holding constituting 16.34% of total assets by the end of Q3 2024, marking a positive change from historical metrics.

The management at Baiyun Airport has pledged to establish a profit distribution scheme, committed to ensuring cash dividend distributions of no less than 50% of annual net profits from 2024 to 2026, contingent upon meeting cash dividend prerequisitesSimilarly, Shenzhen Airport aspires to allocate at least 45% of distributable profits between 2023 and 2025 as cash dividends.

With an eye on operational optimization, since 2024, Shenzhen Airport has made substantial strides in developing its international passenger operations

The airport has restored and expanded international routes to Mexico City, Budapest, Madrid, Cairo, Riyadh, and Doha, introducing 12 international routes while amplifying services on 10 existing lines.

By the end of December 2024, Shenzhen Airport anticipates exceeding 800 weekly international and regional passenger flights, approaching 90% of 2019 flight volumesAdditionally, Shenzhen Airport successfully attracted 10 airlines, including Qatar Airways and Atlas Air, augmenting service capabilities by adding new cargo routes to Budapest and Kuching, while increasing frequency on existing international cargo points.

In the face of macroeconomic uncertainty, regulatory shifts, and fierce market competition—evidenced by expansion efforts at Hong Kong and Shenzhen airports—the overall market shares and passenger flows for Baiyun Airport are at risk of dispersionPresently, the limited airline capacity and the incomplete recovery of outbound travel from China hinder the growth of certain international marketsNevertheless, as international passenger traffic rebounds, an increase in per capita spending has become apparent, potentially bolstering revenue streams across the board.

On the domestic front, airport companies are actively adapting to real-time developments by enhancing their route networksShenzhen Airport has inaugurated 12 popular routes to cities like Liupanshui and Turpan, while increasing flights on eight of the top ten domestic routes, successfully restoring more than 130 domestic connectivity points to pre-2019 levelsCity terminal collaborations achieved within the Guangdong-Hong Kong-Macao Greater Bay Area encompass seven cities including Shenzhen, Hong Kong, Dongguan, Huizhou, Zhongshan, Jiangmen, and Zhuhai.

Expanding collaboration opportunities within the Zhuxi market has fueled rapid service enhancements at Shenzhen Airport, with the launch of functioning facilities such as the Shenzhen-Zhongshan Aviation Port, launched concurrently with the Shenzhen-Zhongshan Link

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