[Cover and Company Profile](index=1&type=section&id=Cover%20and%20Company%20Profile) [Company Profile](index=2&type=section&id=Company%20Profile) Air China, the sole flag carrier of China and a Star Alliance member, is headquartered in Beijing, operating 676 aircraft and serving 1,317 destinations in 193 countries, with stakes in Shenzhen Airlines, Air Macau, and Cathay Pacific - Air China is the sole flag carrier of China, headquartered in Beijing[3](index=3&type=chunk) - As of the reporting period, the group operates a total of **676 passenger aircraft** (including business jets), possessing the largest wide-body fleet in China[3](index=3&type=chunk) - Through Star Alliance, the route network covers **1,317 destinations in 193 countries**[3](index=3&type=chunk) [Financial and Operational Summary](index=5&type=section&id=Financial%20and%20Operational%20Summary) [Financial Data Summary](index=5&type=section&id=Financial%20Data%20Summary) In H1 2019, group revenue increased by 1.67% to RMB 65.31 billion, but net profit attributable to shareholders decreased by 9.55% to RMB 3.14 billion due to various factors, while EBITDA significantly grew by 24.72% primarily due to new leasing standards, which also led to a substantial increase in total assets and liabilities Financial Indicators (RMB billions) | Indicator (RMB billions) | H1 2019 | H1 2018 | Change | | :--- | :--- | :--- | :--- | | Operating Revenue | 65.313 | 64.242 | 1.67% | | Operating Profit | 6.742 | 6.641 | 1.52% | | Profit Before Tax | 4.505 | 5.006 | (10.01%) | | Profit Attributable to Equity Holders of the Company | 3.144 | 3.476 | (9.55%) | | EBITDA | 17.045 | 13.667 | 24.72% | | Earnings Per Share Attributable to Equity Holders of the Company (RMB) | 0.2289 | 0.2531 | (9.56%) | Balance Sheet Indicators (RMB billions) | Indicator (RMB billions) | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | 285.454 | 243.657 | | Total Liabilities | 188.487 | 143.159 | | Equity Attributable to Equity Holders of the Company | 89.609 | 93.157 | - Effective January 1, 2019, the Group adopted International Financial Reporting Standard 16 (New Leasing Standard), adjusting financial statement items without restating comparative data[9](index=9&type=chunk) [Business Operations Data Summary](index=6&type=section&id=Business%20Operations%20Data%20Summary) In H1 2019, group passenger capacity (ASK) increased by 5.93%, RPK by 6.60%, and load factor by 0.51 percentage points to 80.99%, while cargo data adjusted due to Air China Cargo's deconsolidation showed a 2.17% decrease in belly-hold cargo RTK and a 2.43 percentage point drop in load factor, with improved aircraft daily utilization Passenger Indicators (Millions) | Passenger Indicator | Jan-Jun 2019 | Jan-Jun 2018 | Change | | :--- | :--- | :--- | :--- | | Available Seat Kilometers (Millions) | 141,728.21 | 133,799.77 | 5.93% | | Revenue Passenger Kilometers (Millions) | 114,784.17 | 107,679.81 | 6.60% | | Passenger Load Factor | 80.99% | 80.48% | +0.51 percentage points | | Number of Passengers (Thousands) | 56,483.19 | 53,752.20 | 5.08% | Cargo Indicators (Millions) | Cargo Indicator | Jan-Jun 2019 | Jan-Jun 2018 | Change | | :--- | :--- | :--- | :--- | | Available Freight Ton Kilometers (Millions) | 5,534.23 | 5,349.36 | 3.46% | | Revenue Freight Ton Kilometers (Millions) | 2,333.48 | 2,385.29 | (2.17%) | | Cargo and Mail Load Factor | 42.16% | 44.59% | (2.43 percentage points) | - Revenue per Revenue Passenger Kilometer was **RMB 0.5214**, a **1.29% decrease** year-on-year[11](index=11&type=chunk) - Effective January 2019, due to the completion of Air China Cargo's equity transfer, operational data only includes belly-hold cargo data, with prior period data adjusted for comparability[11](index=11&type=chunk) [Business Overview](index=8&type=section&id=Business%20Overview) [Fleet Development](index=8&type=section&id=Fleet%20Development) During the reporting period, the Group introduced 19 aircraft and retired 12, resulting in a fleet of 676 aircraft with an average age of 6.81 years, primarily Airbus and Boeing series, with plans for continued new aircraft introductions in the next three years - As of June 30, 2019, the Group operated a total of **676 aircraft**, with an average age of **6.81 years**[15](index=15&type=chunk)[16](index=16&type=chunk) Fleet Composition | Aircraft Type Series | Total as of June 30, 2019 | Average Age (Years) | | :--- | :--- | :--- | | Airbus Series | 342 | 7.10 | | Boeing Series | 329 | 6.50 | | Business Jets | 5 | 6.90 | | **Total** | **676** | **6.81** | - Future introduction plans include Airbus, Boeing, and COMAC series aircraft, with an estimated **55, 93, and 42 aircraft** to be introduced in **2019, 2020, and 2021**, respectively[17](index=17&type=chunk) [Hub Network](index=9&type=section&id=Hub%20Network) The company maintains its 'Four-Corner Diamond' hub network strategy centered on Beijing, while developing Chengdu, Shanghai, and Shenzhen as gateways, actively expanding its route network by opening and optimizing international and domestic routes in response to the 'Belt and Road' initiative, operating 766 passenger routes to 190 cities in 41 countries and regions as of the period end - Adhering to the 'Four-Corner Diamond' hub network strategy centered in Beijing, actively promoting related renovation and construction projects at Beijing Capital International Airport[18](index=18&type=chunk) - The number of connecting passengers at the Beijing hub increased by **11%** year-on-year[18](index=18&type=chunk) - As of the reporting period, the Group operates **766 passenger routes**, serving **190 cities**, and through Star Alliance partnerships, services extend to **1,317 destinations in 193 countries**[18](index=18&type=chunk) [Brand and Marketing](index=10&type=section&id=Brand%20and%20Marketing) The company improved aircraft daily utilization by 0.15 hours, increasing profit by nearly RMB 400 million, with first/business class revenue up 4.3% and ancillary service revenue up 73%, while mobile sales were strong with APP revenue reaching RMB 3.59 billion, and 'PhoenixMiles' members totaled 60.09 million, contributing 6.3% more revenue - Aircraft daily utilization increased by **0.15 hours**, leading to efficiency improvements and structured profit increase of nearly **RMB 400 million**[19](index=19&type=chunk) - First/business class revenue increased by **4.3%** year-on-year, and ancillary service product revenue grew by **73%** to **RMB 160 million**[19](index=19&type=chunk) - 'PhoenixMiles' members totaled **60.09 million**, contributing **6.3%** more revenue, with the company's APP users reaching **9.37 million**, generating **RMB 3.59 billion** in sales revenue[19](index=19&type=chunk) [Products and Services](index=10&type=section&id=Products%20and%20Services) The company is committed to enhancing passenger experience, benchmarking Star Alliance service standards, and continuously advancing digitalization projects, optimizing and upgrading in-flight products such as seats, entertainment systems, and catering, and progressing with in-flight WIFI modifications, having released 75 product service standards as of the reporting period - Benchmarking Star Alliance service standards, advancing digitalization and baggage hub center projects[20](index=20&type=chunk) - In the first half of the year, **10 aircraft**, including A320 and B777, underwent in-flight WIFI modifications[20](index=20&type=chunk)[21](index=21&type=chunk) [Synergy and Cooperation](index=11&type=section&id=Synergy%20and%20Cooperation) The company deepened strategic synergy with its member airlines and strengthened joint ventures with international partners, making progress with Lufthansa and Air Canada joint ventures, while enhancing cooperation with United Airlines and Air New Zealand, currently engaging in code-sharing with 36 airlines - Deepened joint venture cooperation with Lufthansa and fully launched joint venture cooperation with Air Canada[22](index=22&type=chunk) - Engaged in code-sharing cooperation with **19 Star Alliance members** and a total of **36 airlines**[22](index=22&type=chunk) [Safety Operations and Future Outlook](index=11&type=section&id=Safety%20Operations%20and%20Future%20Outlook) During the reporting period, the company maintained its safety baseline, achieving 1.1292 million safe flight hours, actively addressing challenges like the B737MAX grounding to ensure operational safety, and plans to uphold high-quality development in the second half, further strengthening safety management, optimizing the hub network, and enhancing service quality to build a world-class air transport group - During the reporting period, the company achieved **1.1292 million safe flight hours** and nearly **410,000 safe take-offs and landings**[23](index=23&type=chunk) - Looking ahead, the Group will continue to pursue steady progress, strengthen risk control and profitability, optimize its hub network and production organization, and enhance service quality[24](index=24&type=chunk) [Performance of Major Subsidiaries and Associates](index=12&type=section&id=Performance%20of%20Major%20Subsidiaries%20and%20Associates) This section details the operating performance of Air China's major subsidiaries and associates, with Shenzhen Airlines contributing significant revenue and profit despite a year-on-year profit decline, Air Macau showing revenue growth but reduced profit, Cathay Pacific's performance significantly improving from loss to profit, providing investment income to Air China, and Shandong Airlines turning from profit to loss [Shenzhen Airlines](index=12&type=section&id=Shenzhen%20Airlines) Shenzhen Airlines (including Kunming Airlines) achieved operating revenue of **RMB 15.61 billion**, a 3.70% year-on-year increase, but profit attributable to shareholders decreased by 11.57% to **RMB 466 million**, with a load factor of 81.12%, down 0.86 percentage points year-on-year Indicators (RMB millions) | Indicator | Amount (RMB millions) | Y-o-Y Change | | :--- | :--- | :--- | | Operating Revenue | 15610 | +3.70% | | Profit Attributable to Shareholders | 466 | -11.57% | [Air Macau](index=13&type=section&id=Air%20Macau) Air Macau achieved operating revenue of **RMB 1.853 billion**, a 12.85% year-on-year increase, but after-tax profit was **RMB 71 million**, a decrease of RMB 45 million year-on-year, driven by strong passenger demand with passenger traffic up 17.90% Indicators (RMB millions) | Indicator | Amount (RMB millions) | Y-o-Y Change | | :--- | :--- | :--- | | Operating Revenue | 1853 | +12.85% | | Profit After Tax | 71 | -45 million | [Cathay Pacific](index=15&type=section&id=Cathay%20Pacific) Cathay Pacific (Air China's 29.99% stake) significantly improved its performance, achieving operating revenue of **RMB 47.011 billion**, a 5.50% year-on-year increase, and profit attributable to shareholders reached **RMB 1.183 billion**, compared to a loss of RMB 221 million in the same period last year Indicators (RMB billions) | Indicator | Amount (RMB billions) | Y-o-Y Change | | :--- | :--- | :--- | | Operating Revenue | 47.011 | +5.50% | | Profit Attributable to Shareholders | 1.183 | Loss of 0.221 billion in prior period | [Shandong Airlines](index=16&type=section&id=Shandong%20Airlines) Shandong Airlines achieved operating revenue of **RMB 8.989 billion**, a 2.98% year-on-year increase, but recorded a loss attributable to shareholders of **RMB 27 million**, compared to a profit of RMB 204 million in the same period last year Indicators (RMB millions) | Indicator | Amount (RMB millions) | Y-o-Y Change | | :--- | :--- | :--- | | Operating Revenue | 8989 | +2.98% | | Loss Attributable to Shareholders | 27 | Profit of 204 million in prior period | [Management Discussion and Analysis](index=17&type=section&id=Management%20Discussion%20and%20Analysis) [Profitability Analysis](index=17&type=section&id=Profitability%20Analysis) During the reporting period, the Group's operating profit slightly increased by 1.52% to RMB 6.742 billion, driven by a 1.67% revenue growth primarily from passenger business, while cargo revenue significantly decreased due to Air China Cargo's deconsolidation, operating expenses increased by 1.56% with stable fuel costs but higher landing fees and staff costs, exchange losses significantly reduced, interest expenses increased due to new leasing standards, and profit from associates significantly increased due to Cathay Pacific's turnaround - In H1 2019, the Group recorded an operating profit of **RMB 6.742 billion**, a **1.52% increase** year-on-year[39](index=39&type=chunk) - Profit from associates was **RMB 146 million**, an increase of **RMB 69 million** year-on-year, primarily due to recognizing an investment gain of **RMB 199 million** from Cathay Pacific (compared to a loss of RMB 157 million in the prior period)[59](index=59&type=chunk) [Operating Revenue](index=17&type=section&id=Operating%20Revenue) Total group revenue increased by 1.67% to RMB 65.313 billion, with passenger revenue growing 5.20% to RMB 59.851 billion driven by increased capacity and load factor, while cargo and mail revenue decreased by 44.23% due to Air China Cargo's deconsolidation, and China mainland revenue accounted for the largest share at 65.03% Revenue Type (RMB billions) | Revenue Type (RMB billions) | H1 2019 | Y-o-Y Change | | :--- | :--- | :--- | | Air Transportation Revenue | 62.681 | +1.15% | | Other Operating Revenue | 2.632 | +15.79% | | **Total Operating Revenue** | **65.313** | **+1.67%** | - Passenger revenue increased by **5.20%**, primarily driven by increased capacity input (**+5.93%**) and higher load factor (**+0.51 percentage points**), partially offset by a decrease in yield (**-1.29%**)[43](index=43&type=chunk)[44](index=44&type=chunk) - Excluding the impact of Air China Cargo's deconsolidation, cargo and mail transportation revenue decreased by **RMB 67 million** year-on-year, mainly due to a decline in load factor[48](index=48&type=chunk) [Operating Expenses](index=20&type=section&id=Operating%20Expenses) Group operating expenses increased by 1.56% to RMB 60.502 billion, with aviation fuel costs being the largest component (29.11%) but remaining largely stable year-on-year, while landing and parking fees and staff costs increased due to business expansion, and aircraft maintenance, repair, and overhaul costs decreased by 15.50% year-on-year due to the adoption of new leasing standards Expense Items (RMB billions) | Expense Item (RMB billions) | H1 2019 | Proportion | Y-o-Y Change | | :--- | :--- | :--- | :--- | | Aviation Fuel Costs | 17.615 | 29.11% | +0.19% | | Staff Costs | 11.761 | 19.44% | +1.42% | | Depreciation, Amortization and Lease Expenses | 10.863 | 17.96% | +3.17% | | Landing and Parking Fees | 8.055 | 13.31% | +9.29% | | Aircraft Maintenance, Repair and Overhaul Costs | 2.886 | 4.77% | -15.50% | | **Total Operating Expenses** | **60.502** | **100.00%** | **+1.56%** | [Asset and Debt Structure Analysis](index=22&type=section&id=Asset%20and%20Debt%20Structure%20Analysis) Due to the new leasing standards, the Group's total assets and liabilities significantly increased at the beginning of the year, reaching RMB 285.454 billion and RMB 188.487 billion respectively as of the reporting period, with a debt-to-asset ratio of 66.03%, slightly down from the beginning of the year but remaining at a reasonable level, while the proportion of RMB-denominated interest-bearing debt increased to 54.63% and USD-denominated debt decreased to 44.19%, indicating optimization of debt currency structure, with capital expenditures primarily for aircraft and engine investments - The adoption of new leasing standards led to a **RMB 36.717 billion** increase in total assets on January 1, 2019, with total assets reaching **RMB 285.454 billion** as of the reporting period[60](index=60&type=chunk) - Capital expenditures during the reporting period totaled **RMB 9.667 billion**, of which **RMB 8.965 billion** was for aircraft and engine investments[62](index=62&type=chunk) - As of the reporting period, the debt-to-asset ratio was **66.03%**, a **0.30 percentage point decrease** from **66.33%** at the beginning of the year (after adopting the new standard)[68](index=68&type=chunk) Interest-Bearing Debt Currency Structure | Interest-Bearing Debt Currency Structure | Proportion as of June 30, 2019 | Proportion as of Jan 1, 2019 | | :--- | :--- | :--- | | USD | 44.19% | 48.43% | | RMB | 54.63% | 50.28% | | Other | 1.18% | 1.29% | [Liquidity and Funding Sources](index=24&type=section&id=Liquidity%20and%20Funding%20Sources) During the reporting period, the Group's net cash inflow from operating activities was RMB 13.075 billion, an 11.64% year-on-year increase, primarily due to operating lease payments being reclassified to financing activities under the new leasing standards, while net cash outflow from investing activities significantly decreased and net cash outflow from financing activities increased, with the company possessing sufficient bank credit lines to meet liquidity and capital expenditure needs Cash Flow (RMB billions) | Cash Flow (RMB billions) | H1 2019 | H1 2018 | | :--- | :--- | :--- | | Net Cash Inflow from Operating Activities | 13.075 | 11.712 | | Net Cash Outflow from Investing Activities | (3.456) | (8.451) | | Net Cash (Outflow)/Inflow from Financing Activities | (8.703) | 0.120 | - The company has secured a total credit line of **RMB 131.216 billion** from multiple domestic banks, of which approximately **RMB 18.183 billion** has been utilized[69](index=69&type=chunk) [Risk Analysis](index=24&type=section&id=Risk%20Analysis) The Group faces multiple risks, including macroeconomic fluctuations, oil price volatility, and exchange rate fluctuations, with high sensitivity to oil prices and exchange rates, where a 1% depreciation of RMB against USD would reduce net profit by RMB 480 million, while operational risks include intensified industry competition, high-speed rail substitution, and 'de-hubbing' challenges from the development of international routes in second-tier cities - Oil price risk: A **5% increase or decrease** in average aviation fuel prices would result in an approximate **RMB 881 million** change in the Group's aviation fuel costs[71](index=71&type=chunk) - Exchange rate risk: If the RMB depreciates by **1%** against the USD, the Group's net profit and shareholders' equity would decrease by approximately **RMB 480 million**[72](index=72&type=chunk) - Competition risk: Facing 'de-hubbing' challenges from joint ventures of large network airlines, expansion of domestic medium-sized airlines, diversion by high-speed rail networks, and the development of long-haul routes in second-tier cities[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) [Shareholders and Governance](index=26&type=section&id=Shareholders%20and%20Governance) [Major Shareholder Holdings](index=26&type=section&id=Major%20Shareholder%20Holdings) As of the reporting period, China National Aviation Holding Corporation (CNAHC) is the controlling shareholder, holding a total of 51.70% of the company's shares directly and indirectly, with Cathay Pacific as the second largest shareholder holding 18.13% of H shares, and a total of 159,245 shareholders - Controlling shareholder CNAHC, through direct holdings and indirect holdings via its wholly-owned subsidiary CNAH Limited, collectively holds **51.70%** of the Company's shares[78](index=78&type=chunk)[82](index=82&type=chunk) Major Shareholders | Major Shareholder | Shareholding Proportion | Share Class | | :--- | :--- | :--- | | China National Aviation Holding Corporation (Total) | 51.70% | A Share & H Share | | Cathay Pacific Airways Limited | 18.13% | H Share | | HKSCC Nominees Limited | 11.62% | H Share | | China National Aviation Corporation (Group) Limited | 10.72% | A Share & H Share | [Corporate Governance and Other Information](index=30&type=section&id=Corporate%20Governance%20and%20Other%20Information) During the reporting period, the company complied with the Corporate Governance Code and Model Code, prioritizing environmental protection through fleet optimization, fuel-saving measures, and promoting 'oil-to-electricity' conversions for energy conservation and emission reduction, with the report disclosing the use of proceeds from the 2017 non-public A-share offering, mostly for aircraft purchases and working capital, and the Board of Directors decided not to declare an interim dividend for H1 2019 - The company has consistently complied with the code provisions of Appendix 14 'Corporate Governance Code' of the Listing Rules during the reporting period[85](index=85&type=chunk) - The company actively promoted energy conservation and environmental protection, achieving **6,609.9 tons of fuel savings** and **20,821.2 tons of CO2 emission reduction** through various fuel-saving measures during the reporting period[86](index=86&type=chunk) - The Board of Directors decided not to declare an interim dividend for the six months ended June 30, 2019[92](index=92&type=chunk) - Subsequent event: On July 11, 2019, the company entered into an agreement with Airbus for the purchase of **20 A350-900 aircraft**[95](index=95&type=chunk) [Condensed Consolidated Financial Statements](index=33&type=section&id=Condensed%20Consolidated%20Financial%20Statements) [Review Report](index=33&type=section&id=Review%20Report) Deloitte Touche Tohmatsu, the auditor, reviewed the interim condensed consolidated financial statements in accordance with Hong Kong Standard on Review Engagements, and based on the review, found no matters that caused them to believe the financial statements were not prepared in all material respects in accordance with International Accounting Standard 34 - Auditor's conclusion: No matters were noted that caused the auditor to believe the condensed consolidated financial statements were not prepared in all material respects in accordance with International Accounting Standard 34[98](index=98&type=chunk) [Key Financial Statement Items](index=34&type=section&id=Key%20Financial%20Statement%20Items) This section includes the condensed consolidated statement of profit or loss, statement of comprehensive income, statement of financial position, statement of changes in equity, and statement of cash flows for the six months ended June 30, 2019, showing a profit of RMB 3.500 billion for the period, profit attributable to shareholders of RMB 3.144 billion, total assets of RMB 285.454 billion, total equity of RMB 96.968 billion, and net cash inflow from operating activities of RMB 13.075 billion Condensed Consolidated Statement of Profit or Loss (RMB thousands) | Condensed Consolidated Statement of Profit or Loss (RMB thousands) | For the six months ended June 30, 2019 | | :--- | :--- | | Revenue | 65,313,087 | | Operating Profit | 6,742,370 | | Profit Before Tax | 4,505,149 | | Profit for the Period | 3,500,354 | | Profit Attributable to Equity Holders of the Company | 3,144,219 | Condensed Consolidated Statement of Financial Position (RMB thousands) | Condensed Consolidated Statement of Financial Position (RMB thousands) | June 30, 2019 | | :--- | :--- | | Non-current Assets | 259,867,100 | | Current Assets | 25,587,332 | | **Total Assets** | **285,454,432** | | Current Liabilities | 77,790,795 | | Non-current Liabilities | 110,695,764 | | **Total Liabilities** | **188,486,559** | | **Total Equity** | **96,967,873** | [Summary of Notes to Financial Statements](index=41&type=section&id=Summary%20of%20Notes%20to%20Financial%20Statements) The notes to the financial statements detail accounting policies, segment information, key financial item breakdowns, commitments and contingent liabilities, and related party transactions, with the most significant change being the first-time adoption of IFRS 16 'Leases' from January 1, 2019, which significantly impacted the company's asset, liability, and expense structure [Note 3: Significant Accounting Policies (Impact of IFRS 16)](index=41&type=section&id=Note%203%3A%20Significant%20Accounting%20Policies%20(Impact%20of%20IFRS%2016)) The Group first adopted IFRS 16 'Leases' from January 1, 2019, choosing the simplified transition method without restating comparative data, resulting in the recognition of **RMB 108.88 billion** in right-of-use assets and **RMB 93.549 billion** in lease liabilities on January 1, 2019, and a negative impact of **RMB 5.105 billion** on opening retained earnings, significantly altering the company's balance sheet structure - The Group first adopted IFRS 16 on January 1, 2019, using the modified retrospective approach without restating comparative data[112](index=112&type=chunk)[125](index=125&type=chunk) - As of January 1, 2019, the Group recognized **RMB 93.549 billion** in lease liabilities and **RMB 108.88 billion** in right-of-use assets[125](index=125&type=chunk) - The initial application of IFRS 16 resulted in a **RMB 5.105 billion** decrease in retained earnings as of January 1, 2019[135](index=135&type=chunk) [Note 4B: Segment Information](index=51&type=section&id=Note%204B%3A%20Segment%20Information) The Group's operating segments are primarily categorized into 'Air Transportation Operations' and 'Other' businesses, with 'Air Transportation Operations' being the absolute core, contributing the vast majority of revenue and profit, and China mainland being the largest revenue source geographically, accounting for 65.03% of total revenue Segment (H1 2019) | Segment (H1 2019) | External Revenue (RMB billions) | Profit Before Tax (RMB billions) | | :--- | :--- | :--- | | Air Transportation Operations | 64.129 | 4.354 | | Other | 1.184 | 0.416 | [Note 12: Interests in Associates](index=57&type=section&id=Note%2012%3A%20Interests%20in%20Associates) As of the reporting period, interests in associates totaled **RMB 14.369 billion**, with the investment in Cathay Pacific having a carrying value of **RMB 12.225 billion**, and Cathay Pacific achieving revenue of **RMB 47.011 billion** and net profit of **RMB 1.183 billion** during this reporting period - As of June 30, 2019, the carrying value of the investment in Cathay Pacific was **RMB 12.225 billion**[159](index=159&type=chunk) [Note 21: Commitments](index=66&type=section&id=Note%2021%3A%20Commitments) As of the reporting period, the Group had total contracted but unprovided capital commitments of **RMB 29.677 billion**, primarily for the purchase of aircraft and related equipment, in addition to **RMB 59 million** in investment commitments - Total capital commitments amounted to **RMB 29.677 billion**, of which **RMB 26.963 billion** was for aircraft and aviation equipment[184](index=184&type=chunk) [Note 22: Related Party Transactions](index=67&type=section&id=Note%2022%3A%20Related%20Party%20Transactions) The Group engages in extensive related party transactions with its controlling shareholder CNAHC and its subsidiaries, associates, and joint ventures, including service provision and procurement, leasing, and financial services, with significant transaction volumes with CNAHC during the reporting period, such as procurement of airport ground services and in-flight catering, and CNAHC also provides guarantees for some of the company's bonds - The Group has significant transactions with CNAHC and its related parties across various areas, including sales, procurement, leasing, and financial services[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk) - As of June 30, 2019, CNAHC provided guarantees for the Company's corporate bonds totaling **RMB 6.5 billion**[198](index=198&type=chunk)

Financial Performance - The company achieved operating revenue of RMB 136.774 billion, with a pre-tax profit of RMB 9.977 billion and a net profit attributable to shareholders of RMB 7.351 billion, representing a year-on-year increase of 1.47%[19] - In 2018, the company achieved operating revenue of RMB 136.77 billion, an increase from RMB 121.36 billion in 2017, representing a growth of approximately 12.1%[28] - The company reported a net profit attributable to shareholders of RMB 7.35 billion in 2018, slightly up from RMB 7.24 billion in 2017, indicating a growth of about 1.5%[28] - The company’s EBITDA for 2018 was RMB 28.85 billion, up from RMB 25.35 billion in 2017, marking a growth of around 9.8%[28] - Operating revenue for the period was RMB 136.774 billion, up RMB 15.412 billion or 12.70% year-on-year[89] - Passenger revenue reached RMB 120.430 billion, increasing by RMB 13.686 billion or 12.82% year-on-year[94] - Cargo and mail transportation revenue was RMB 11.406 billion, up RMB 1.151 billion or 11.22% year-on-year[99] - Operating expenses rose to RMB 126.537 billion, an increase of 12.71% from RMB 112.270 billion in 2017[101] Transportation and Operations - The total transportation turnover reached 27.518 billion ton-kilometers, an increase of 8.40% year-on-year, while the number of passengers transported was 110 million, up 8.02% year-on-year[19] - The total passenger turnover reached 220.528 billion revenue passenger kilometers, representing a year-on-year growth of 9.67%, while the passenger load factor was 80.60%, a decrease of 0.54 percentage points[46] - The company achieved a flight safety record of 2.2452 million hours, a year-on-year increase of 6.14%[19] - The company expanded its hub network, launching 155 new domestic and international routes, bringing the total number of passenger routes to 754, including 138 international routes[47] - The company plans to complete 2.306 million hours of transportation flights and a total turnover of 26.74 billion ton-kilometers in 2019[82] Fleet and Capacity - The fleet size at the end of 2018 was 669 aircraft, with an average age of 6.62 years[42] - The company introduced 50 new aircraft in 2018, including 6 A350 and 1 B787-9[42] - Available seat kilometers increased by 10.41% to 273,600.29 million in 2018 from 247,815.03 million in 2017[37] - Revenue passenger kilometers rose by 9.67% to 220,528.34 million in 2018 compared to 2017[37] - The company plans to introduce 72 new aircraft in 2019, with 39 from the Airbus series and 33 from the Boeing series[44] Customer Engagement and Services - The registered users on the mobile platform increased by 29.6% year-on-year, with sales revenue growing by 50%[19] - The company’s "Phoenix Miles" membership reached over 56 million, with revenue contribution from frequent flyers increasing by 11.6% year-on-year[19] - The company is committed to enhancing service quality and customer satisfaction, with significant improvements noted in passenger experience[19] - The company’s additional service product sales increased by 45.9% year-on-year, with significant growth in upgrade products, paid seat selection, and prepaid baggage revenue[50] Strategic Initiatives and Partnerships - The company expanded its international network by launching 56 new international routes in 19 countries along the Belt and Road Initiative, connecting 28 cities[19] - The company signed its first joint venture agreement with Air Canada in June 2018, aiming to optimize flight schedules and enhance customer offerings on China-North America routes[24] - The company’s international cooperation expanded, with 36 partners providing 14,087 code-share flights weekly, enhancing its global service reach to 1,317 destinations in 193 countries[47] Financial Stability and Investments - The asset-liability ratio decreased to 58.75%, indicating improved financial stability and risk management[18] - The group’s total liabilities amounted to RMB 143.159 billion, an increase of 1.69% year-on-year, with current liabilities making up 50.67%[113] - Future capital expenditure plans for aircraft and related equipment total RMB 46.291 billion over the next three years, with RMB 24.107 billion planned for 2019[117] - The company completed the transfer of 51% equity in China National Aviation Holding to Capital Holdings, marking a strategic divestment[26] Governance and Compliance - The board of directors consists of eight members, with four being independent non-executive directors, demonstrating active participation in company affairs[128] - The company emphasizes compliance with legal and regulatory requirements, with ongoing reviews of governance policies and practices[130] - The company has established a risk management and internal control system, which is reviewed at least annually for effectiveness[150] - The company has established compliance procedures to ensure adherence to applicable laws and regulations, with no significant violations reported during the reporting period[194] Shareholder Relations and Dividends - The company proposes to distribute a cash dividend of approximately RMB 1.5 billion, which is 35% of the distributable profit for the year, translating to RMB 1.0328 per 10 shares[173] - The company emphasizes a consistent and stable profit distribution policy, prioritizing cash dividends, with a minimum of 15% of distributable profits allocated for cash dividends[172] - The company will communicate with shareholders, especially minority shareholders, to gather their opinions and concerns regarding profit distribution[172] Market Outlook and Challenges - The competitive landscape in the global aviation market is evolving, with increased competition from both domestic and international carriers[85] - The competitive landscape is intensifying with the emergence of low-cost airlines and regional carriers, which may impact the company's future revenue levels[123] - The Chinese aviation market is expected to continue growing, driven by business travel and tourism, despite economic pressures[84]