Will Air China lead the recovery of struggling mainland carriers?

China has struggled to rebound from the economic impacts of the pandemic between 2020 and 2023, making its recovery slower than that of the United States. In winter 2024, analysts from DBS and Citigroup identified Air China as the leading airline to capitalize on returning domestic and international travel. Air China stands out for its unique ability to serve all six continents and maintain a strong foothold on the lucrative China-to-Europe and China-to-North America routes. This positioning is particularly advantageous as ticket demand for travels from mainland China to Europe surged by about 50% compared to the previous year, while inbound demand tripled, reflecting travelers from both Japan and the U.S. In recent months, the Chinese government has introduced expanded visa-free travel policies for visitors from several countries, further stimulating tourism and air travel demand. Analysts project a bright future for Air China, as they expect governmental economic policies to support household consumption in the near term. On a different note, Air China's stock performance has been less impressive compared to its peer United Airlines, whose stock has hit record highs as of December 2024. Analysts have maintained a buy rating on Air China’s stock, emphasizing that its current valuation is significantly more attractive, being over 60% below its 2018 all-time high. As China’s domestic air passenger numbers are expected to grow by 11% in 2024 and further by 6% in 2025, Air China is viewed as a prime benefactor of this journey. Additionally, its roughly 30% stake in Hong Kong-based Cathay Pacific is seen as a strategic advantage which could bolster growth. With expectations of improving cash flow generation, Air China aims to swiftly reduce debts and rejuvenate its financial standing. Despite the optimism surrounding Air China’s rebound, the airline has a considerable distance to bridge to match the progress of its international competitors, particularly United Airlines, which has performed exceptionally in the recent recovery stage. The trends indicate a strong recovery potential for Air China as powerfully forecasted by various analysts leading into the next two years.