2Q26 results in line with market expectations

Spring Airlines announced its 1H26 results: Revenue rose 19.7% YoY to Rmb12.34bn, net profit attributable to shareholders fell 10.8% YoY to Rmb1.04bn, and recurring net profit declined 10.6% YoY to Rmb1.03bn. In 2Q26, revenue grew 25.6% YoY to Rmb6.27bn, net profit attributable to shareholders dropped 87.9% YoY to Rmb59mn, and recurring net profit decreased 87.7% YoY to Rmb58mn. We attribute the profit decline to rising cost pressure caused by volatile aviation fuel prices, which remained elevated. The firm’s results are in line with market expectations.

Rising aviation fuel prices drive up airfares and weigh on costs; PLF continues to increase. In 1H26, the firm’s airfares rose amid higher aviation fuel prices, and the Revenue Passenger Kilometer (RPK) yield grew 2.3% YoY. In 1H26, average procurement price of domestic aviation fuel grew 38.5% YoY, with the unit fuel cost rising 33.2% YoY. However, the decline in unit non-fuel cost was insufficient to offset the negative impact from the increase in aviation fuel cost. In 1H26, passenger load factor (PLF) rose 2.1ppt YoY and available seat kilometers (ASK) grew 15.4% YoY, driving passenger traffic up by 18.0% YoY.

Trends to watch

Cost pressure may not subside over the next one to two years amid high aviation fuel prices and expansion of international routes. In 1H26, operating cost rose 24.56% YoY to Rmb11.05bn, primarily driven by an increase of 38.5% YoY in average procurement price of domestic aviation fuel. As geopolitical tensions have yet to subside, we expect aviation fuel prices to remain elevated. This, coupled with high aircraft maintenance expenses and rigid costs associated with international routes, may continue to weigh on the firm’s short- term earnings, in our view.

In 2026, we expect the firm’s capacity to grow around 15% YoY, continuing to outpace the industry average by a large margin. Fleet optimization and improved utilization jointly supported the firm’s scale expansion. In 1H26, the firm added four aircraft on a net basis, and the daily utilization rate rose 10.2% YoY, effectively diluting fixed costs and driving unit nonfuel costs down 4.8% YoY. With continued deliveries of A320neo aircraft and easing bottlenecks in pilot training, we expect the firm’s capacity expansion to maintain double-digit growth in 2H26.

Financials and valuation

As high aviation fuel prices last longer than we expected, we lower our 2026 and 2027 earnings forecasts 16.5% and 8.3% to Rmb1.59bn and Rmb2.84bn. The stock is trading at 26.8x 2026e and 15.0x 2027e P/E. We cut our target price 11.6% to Rmb60, implying 36.8x 2026e and 20.7x 2027e P/E, with an upside of 37.7%. We maintain an OUTPERFORM rating.

Risks

Sharp rise in aviation fuel prices; slow progress in aircraft introduction; disappointing market demand.