中国国航(00753) - 2019 - 中期财报

Cover and Company Profile Company Profile 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] - 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] - Through Star Alliance, the route network covers 1,317 destinations in 193 countries[3] Financial and Operational Summary Financial Data Summary 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] Business Operations Data Summary 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] - 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] Business Overview Fleet Development 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][16] 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] Hub Network 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] - The number of connecting passengers at the Beijing hub increased by 11% year-on-year[18] - 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] Brand and Marketing 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] - First/business class revenue increased by 4.3% year-on-year, and ancillary service product revenue grew by 73% to RMB 160 million[19] - '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] Products and Services 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] - In the first half of the year, 10 aircraft, including A320 and B777, underwent in-flight WIFI modifications[20][21] Synergy and Cooperation 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] - Engaged in code-sharing cooperation with 19 Star Alliance members and a total of 36 airlines[22] Safety Operations and Future Outlook 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] - 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] Performance of Major Subsidiaries and Associates 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 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 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 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 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 Profitability Analysis 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] - 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] Operating Revenue 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][44] - 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] Operating Expenses 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 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] - Capital expenditures during the reporting period totaled RMB 9.667 billion, of which RMB 8.965 billion was for aircraft and engine investments[62] - 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] 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 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] Risk Analysis 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] - 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] - 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][74][75] Shareholders and Governance Major Shareholder Holdings 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][82] 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 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] - 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] - The Board of Directors decided not to declare an interim dividend for the six months ended June 30, 2019[92] - Subsequent event: On July 11, 2019, the company entered into an agreement with Airbus for the purchase of 20 A350-900 aircraft[95] Condensed Consolidated Financial Statements Review Report 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] Key Financial Statement Items 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 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) 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][125] - 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] - The initial application of IFRS 16 resulted in a RMB 5.105 billion decrease in retained earnings as of January 1, 2019[135] Note 4B: Segment Information 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 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] Note 21: Commitments 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] Note 22: Related Party Transactions 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][187][188] - As of June 30, 2019, CNAHC provided guarantees for the Company's corporate bonds totaling RMB 6.5 billion[198]