2024 and 1Q25 earnings miss our and market expectations Spring Airlines announced its 2024 results: Revenue rose 11.5% YoY

to Rmb20bn, largely in line with our expectations. Attributable net profit grew 0.7% YoY to Rmb2.27bn, missing our and market expectations, mainly due to lower-than-expected airfares in 4Q24, in our view.

The firm also announced its 1Q25 results: Revenue rose 2.9% YoY to Rmb5.32bn and total profit grew 0.5% YoY to Rmb0.89bn. Net profit attributable to shareholders fell 16.4% YoY to Rmb0.68bn, mainly due to an increase in the effective tax rate (rising from 9% in 1Q24 to 24% in 1Q25).

RRPK declined 6.5% YoY in 2024, milder than that of major listed

airlines. Specifically, RPK fell 6.3% YoY for domestic routes and 14.8% YoY for international routes (we attribute this to increased capacity for international routes and disappointing returns from Southeast Asian routes).

Unit non-fuel costs continued to decline. In 2024, the firm’s unit

operating cost fell 3.3% YoY and its unit non-fuel cost fell 1.7% YoY. We attribute this to rising aircraft utilization rates.

Trends to watch The company’s international routes generated higher unit earnings than domestic routes, the only one with such performance among listed airlines. We think international routes are the key to the

company’s earnings. We do not expect the overall earnings recovery of Southeast Asian routes to improve much YoY in 2025, and it is unlikely to recover to the 2019 level. However, we think the firm can partially offset the impact of the lack of growth in Southeast Asian markets by increasing flights to Japan and South Korea. Although this may lead to a decline in the return from Japanese and South Korean routes, returns from international routes in those regions will remain higher than those from domestic routes.

Industry airfares still face downward pressure in 2025. We expect the firm’s airfare to continue to outperform the industry. Domestic airfares

fell markedly YoY in 1Q25 due to macroeconomic headwinds, and we expect airfares to remain under pressure in 2025. As a leading low-cost　　airline in China, the firm’s airfares are likely to outperform the industry thanks to a rising proportion of business travelers and an optimized route structure.

The firm may maintain decent capacity growth thanks to its efforts to maintain fleet growth via purchases and leases and rising aircraft

utilization rates. Through purchases and leases, we expect the firm’s aircraft fleet to increase about five aircraft on a net basis in 2025, implying a YoY growth rate of about 4%. Meanwhile, as the number of pilots increases, the utilization rate of its aircraft is likely to continue to increase, and we expect its capacity to grow more than 15% in 2025.

Financials and valuation

As industry airfares have declined YoY since the beginning of 2025, we lower our 2025 revenue forecast 8.6% to Rmb21.33bn and our 2025 earnings forecast 21.6% to Rmb2.53bn. We introduce our 2026 earnings forecast of Rmb3.02bn. The company is trading at 20.8x and 17.4x 2025e and 2026e P/E. Given expected earnings growth in 2026, we keep our target price Rmb67.9 unchanged, implying 26.3x and 22.0x 2025e and 2026e P/E, offering 26.5% upside. Maintain OUTPERFORM.

Risks

Sharp rise in oil prices; slower-than-expected recovery of international flights; disappointing recovery in the number of pilots