The analyst rating from Morgan Stanley is based on the expectation of a multi-year cyclical improvement in the airline industry, which is anticipated to gain momentum in 2026-2027 due to increasing demand. Despite low investor confidence, the firm believes that price hikes will enhance market sentiment. Consequently, Morgan Stanley raised its target prices for the airline sector by an average of 42% and upgraded the A-shares of the three major airlines to Overweight. The firm also expects an improvement in the passenger load factor (PLF) by 1-2 percentage points annually, which suggests stronger pricing power for the airlines. Overall, Morgan Stanley maintains an optimistic outlook on the supply-driven upcycle for Chinese airlines, indicating potential for profit margin upside if pricing exceeds expectations.
