China's Aviation Recovery Gains Momentum: What Rising Passenger Counts Mean for Airline Stocks

The Chinese aviation sector is undergoing a transformative recovery, driven by surging domestic demand and cautious optimism about international traffic. For investors, this momentum raises critical questions: How sustainable is this growth? And what does it mean for airline stocks in the long term?

Domestic Dominance: A Catalyst for Revenue Growth

China's domestic aviation market has become the backbone of its recovery. In Q2 2025, the three largest airline groups-Air China, China Southern, and China Eastern-reported record-breaking traffic, with a 7% year-over-year increase in revenue passenger kilometers (RPK) for April–June 2025, according to Aviation Week data. This growth is underpinned by robust domestic capacity, which accounted for 83% of all seats in September 2025, reflecting a strategic shift toward prioritizing the domestic market, per OAG data.

China Southern Airlines, the leading domestic carrier, exemplifies this trend. With 16% of the domestic market share and 11 million seats in September 2025, the airline has capitalized on the surge in short- to medium-haul travel; OAG data show Guangzhou's Baiyun International Airport (CAN) and Shenzhen (SZX) have also emerged as key hubs, with 3.2 million and 2.9 million seats, respectively, in September 2025.

This domestic-centric strategy is not just a short-term fix. The 13% year-over-year increase in domestic passenger numbers since 2019, according to a FlightGlobal report, suggests structural demand, driven by China's expanding middle class and urbanization. For airlines, this translates to higher load factors and pricing power, particularly on routes connecting secondary cities to major hubs.

International Traffic: A Slow but Steady Climb

While domestic traffic has rebounded sharply, international recovery remains uneven. As of December 2024, international passenger traffic had reached 88% of pre-pandemic levels, FlightGlobal reported, but economic headwinds-such as weak consumer demand and a sluggish global economy-have slowed progress. By the end of 2014, international traffic had only reached 70% of 2019 levels, according to an Alton report, highlighting the sector's vulnerability to macroeconomic shifts.

However, recent data offers a glimmer of hope. In the first half of 2025, Chinese international traffic grew by over 20% year-over-year, outpacing the global average, according to an Aviation Week report. That report also notes global passenger traffic in 2024 hit 9.4 billion, with international demand growing 13.3% year-over-year. For Chinese airlines, this signals a potential inflection point, particularly as governments ease travel restrictions and vaccination rates stabilize.

Revenue Growth Potential: Balancing Risks and Opportunities

The sector's revenue growth hinges on two factors: capacity management and cost efficiency. Domestic airlines have already demonstrated agility in adjusting seat supply to match demand. For instance, the 13% year-over-year increase in domestic capacity in September 2025, per OAG data, was carefully calibrated to avoid over-saturation, ensuring healthy load factors.

Internationally, the path to profitability is more complex. Airlines must navigate volatile fuel prices, regulatory hurdles, and competition from low-cost carriers. Yet, the 20% year-over-year growth in H1 2025 international traffic noted by Aviation Week suggests that demand is resilient, particularly for premium routes to Southeast Asia and Europe. Investors should monitor how carriers balance route expansion with margin preservation.

Long-Term Sector Re-Rating: A Structural Shift

Beyond quarterly metrics, the Chinese aviation sector is undergoing a structural re-rating. Post-pandemic, airlines have accelerated digital transformation, investing in AI-driven demand forecasting and dynamic pricing tools. These innovations are likely to enhance long-term profitability, even as competition intensifies.

Government support also plays a role. China's 14th Five-Year Plan emphasizes infrastructure modernization, including the expansion of regional airports and green aviation initiatives. Such policies could reduce operational costs and attract environmentally conscious travelers-a demographic that now accounts for 30% of China's air-travel market, according to an ACI World update.

Conclusion: A Buy for the Long Haul

For investors, the Chinese aviation sector presents a compelling case. Domestic demand is firmly entrenched, while international traffic is showing signs of stabilization. Airlines that can leverage digital tools to optimize capacity and pricing-while navigating macroeconomic risks-stand to outperform.

However, caution is warranted. The sector's exposure to global economic cycles means that a downturn could quickly reverse gains. That said, the long-term fundamentals-urbanization, infrastructure investment, and a growing middle class-suggest that this recovery is more than a cyclical bounce.

In the end, the question isn't just whether Chinese airlines can grow-it's whether they can grow profitably. For those that can strike that balance, the skies ahead look increasingly promising.