Chinese Airline Sector Monthly: Aug data: Robust international passenger demand; moderating cargo growth

CAAC data shows passenger operations improved marginally in August, but we think the outlook remains challenging. Domestic RPK rose 6% YoY, while ex-fuel airfares were flat YoY (UBSe) amid intensifying competition. International traffic still outpaced domestic, while airfares may be pressured by Japan capacity cuts and soft Southeast-Asia demand. For cargo, international RFTK growth moderated as EU demand weakened after the de minimis exemption removal. Despite a peak-to-trough decline of 50% for the big 3 airlines and 30% for Spring since February, we believe the market has yet to fully price in the higher fuel costs and persistently fragile domestic demand. We have a Sell rating on CA and CEA, and a Neutral rating on CSA and Spring. We reiterate Buy on Eastern Air Logistics. Passenger: the industry's average domestic airfare rose 5.6% YoY to Rmb921 in August; domestic RPK growth edged up to 6% YoY;