Air China Limited - TodayIR · 20.0% 40.0% 60.0% 80.0% ... May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 RPK RFTK

Air China Limited

2010 Annual ResultsUnder IFRS

March 2011

Agenda

Part 1 Highlights

Part 2 Business Overview

Part 3 Financial Overview

Part 4 Outlook

2

Part 1

Highlights

4.9% 5.1% 5.0%3.7% 4.5%

10.2% 10.7%13.0%

9.0% 8.7%10.3%

-0.8%-2.0%0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%

2005 2006 2007 2008 2009 2010Global GDP annual growth rate China GDP annual growth rate

0

50

100

150

200

250

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Global Airlines Index Asia-Pacific Airlines Index

US Airlines Index Europe and Middle East Airlines Index

-40.0%

-20.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%M

ay-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

RPK RFTK

Chinese Economy Continues Steady Growth

Strong Recovery in Global Airline Industry Rapid Growth in Chinese Airline Industry

Source: IMF, NBS

Source: Bloomberg Source: CAAC

Steady Economic Growth; Asia Pacific Led Global Airline Recovery

E

4

Key Operational Metrics* 2010 YoY Change

ASK (million) 132,074.8 33.92%

RPK (million) 105,695.0 40.04%

ATK (million) 19,740.7 28.06%

RTK (million) 14,294.4 38.87%

Passenger Load Factor (%) 80.0 3.50pts

ATK Load Factor (%) 72.4 5.63pts

Key Financial Metrics 2010 YoY Change

Turnover (RMB million) 82,488 60.50%

Operating Expenses (RMB million) 71,560 55.93%

Net Profit (RMB million) 12,336 156.83%

Profits Attributable to Shareholders (RMB million)

12,005 147.31%

EPS (RMB) 1.03 151.22%

Results Highlights

5

* Note: Including Shenzhen Airlines’ operational figures from April 20 to December 31

Part 2

Business Overview

7

Total 2010 YoYChange

Revenue (RMB million) 55,997.9 34.91%

ASK (million) 107,423.1 12.53%

RPK (million) 86,212.2 17.53%

Load Factor (%) 80.25 3.42pts

Yield (RMB/RPK) 0.65 14.04%

Domestic 2010 YoYChange

Revenue (RMB million) 35,526.9 32.58%

ASK (million) 64,062.3 11.37%

RPK (million) 51,414.5 16.48%

Load Factor (%) 80.26 3.52pts

Yield (RMB/RPK) 0.69 13.11%

International 2010 YoYChange

Revenue (RMB million) 18,199.2 38.02%

ASK (million) 39,566.2 13.55%

RPK (million) 31,897.9 18.07%

Load Factor (%) 80.62 3.09pts

Yield (RMB/RPK) 0.57 16.33%

Regional 2010(HK, Macao and Taiwan)

YoYChange

Revenue (RMB million) 2,271.9 48.92%

ASK (million) 3,794.6 22.61%

RPK (million) 2,899.9 32.15%

Load Factor (%) 76.42 5.51pts

Yield (RMB/RPK) 0.78 11.43%

Passenger Services – Air China

0%

10%

20%

30%

40%

ASK Change RPK Change Passenger Load Factor Change

International Domestic Regional

8

Total (as of December 31, 2009) 262Introduced in 2010 30

B737-800 (12), A321/320 (12), A330 (3), Business Jet (2 under custody), B747-400F (1)

Retired in 2010 10

B757-200 (2), B767-300ER (1), B747-200F freighter (2), B737-300 (4), A321-100 (1)

Total (as of December 31, 2010) 282

Timely adjustments of capacity deployment to achieve the alignment of scale, growth rate and market demand

Retirement of older aircraft to further optimize fleet structure and maintain a more efficient fleet

Demand-orientated Capacity Deployment to Further Improve Efficiency

Passenger Capacity and Traffic Changes (2010 vs 2009)

14% 11%

23%18% 16%

32%

3pts 4pts 6pts

Passenger Capacity Distribution Change (2010 vs 2009) 3.53%

59.64%36.83%

3.24%

60.26%36.50%

International Domestic Regional

2010

2009

*Note: does not include the conversion of a B747-400COMBI passenger jet to a B747-400F freighter

87115

0

60

120

180

2009 2010

9

Improved Hub Operation to Realize Greater Network Effects

Transfer passenger traffic at Beijing hub rose 2% year-over-year. Number of effective connecting flights within two hours rose 12.5% year-over-year. New routes from Beijing to Manila, Ulanhot, Jiuzhaigou valley and seven other cities launchedTransfer traffic rose by 40% year-over-year at Chengdu hub, excluding domestic-to-domestic transfers. Through check-in service established in 35 cities, and new routes from Chengdu to Bangalore, Nagoya, Ngari and four other cities launchedShanghai gateway saw transfer traffic increase by 23%. New routes from Shanghai to Taipei Sungshan, Yinchuan and one other city launched. More wide-body aircraft were put into service on Beijing-Shanghai express and Shanghai-Tokyo and Shanghai-Osaka routesTake majority shareholding Shenzhen Airlines boosted the Company’s foothold in Southern China, resulting in a more balanced networkRevenue from transfer passenger rose 32% year-over-year

Changes in Capacity Input in Beijing, Chengdu and Shanghai Transfer Passenger Revenue Rose 32%

RMB 100 million

8.8%15.2% 17.6%

39.9%

3.7%13.0%

0%

20%

40%

60%

Beijing Chengdu Shanghai

ASK YoY Growth AFTK YoY Growth

50

89

0

20

40

60

80

100

2009 2010

99

157

0

60

120

180

2009 2010

33

63

0

20

40

60

80

2009 2010012345678

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec0%

20%

40%

60%

80%

100%

2010 2009International YoY Change Domestic YoY ChangeRegional YoY Change

10

Sustained Improvement in Yield Quality

Premium Class Continued GrowthRMB 100 million RMB 100million

RMB 100 million RMB 100 million

92% Growth in E-commerce Revenue

Frequent Flyer Revenue Rose 59%

Corporate Customer Revenue Grew 78%

Revenue from Star Alliance Carriers Cooperation Rose 91%

9

18

0

5

10

15

20

25

2009 2010

RMB 100 million

11

Cargo Traffic Maintained Rapid Growth

2010 2009 YoY Change

AFTK (million) 7,428.9 6,449.0 15.20%

Freighter AFTK (million) 2,791.1 2,003.9 39.28%

RFTK (million) 4,530.8 3,496.2 29.59%

Freighter RFTK (million) 2,296.2 1,536.7 49.42%

Tonnage Carried (tonne) 1,148,157.3 943,341.3 21.71%

Freighter Tonnage Carried (tonne) 385,193.2 264,882.7 45.42%

Load Factor (%) 60.99% 54.21% 6.78pts

Yield (RMB/RFTK) 1.81 1.51 19.87%

Air China Cargo – Optimizing Operational Efficiency to Significantly Increase Yield

0.050.0

100.0150.0200.0250.0300.0350.0400.0450.0500.0

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Million

0%

10%

20%

30%

40%

50%

60%

70%

80%

RTK in 2010 YoY GrowthInternational YoY Growth Cargo Load FactorInternational Cargo Load Factor

2010 YoY Change

ASK (million) 30,400.4 11.27%

RPK (million) 24,386.8 14.68%

ATK (million) 3,220.1 8.32%

RTK (million) 2,539.87 15.00%

Passengers carried (thousand) 17,568.1 12.25%

Passenger load factor (%) 80.22% 2.38pts

ATK load factor (%) 78.88% 4.58pts

Passenger Yield (RMB/RPK) 0.61 -

Shenzhen Airlines

12

13

2010 YoY Change

ASK (million) 3,106.0 -1.71%

RPK (million) 2,184.9 2.96%

ATK (million) 386.3 3.3%

RTK (million) 257.7 5.4%

Passengers carried (thousand) 1,364.5 -5.7%

Passenger load factor (%) 70.35% 3.19pts

ATK load factor (%) 66.71% 1.34pts

Passenger Yield (RMB/RPK) 0.74 32.14%

Air Macao

Part 3

Financial Overview

15

Record High Net ProfitBenefited from industry recovery and operational efficiency

(RMB million) 2010 2009 YoY Growth

Turnover 82,488 51,393 60.50%

Air traffic revenue 78,209 48,092 62.63%

Operating expenses 71,560 45,892 55.93%

Operating expenses ex-fuel cost 47,464 31,426 51.03%

Gain from change in fair value of fuel derivative contracts 1,954 2,758 -29.15%

Profit/(loss) from operations 10,928 5,501 98.65%

Finance costs -531 1,059 150.14%

Share of profit/(loss) of associates 3,375 624 440.92%

Profit/(loss) before tax 14,834 5,066 192.79%

Net profit/(loss) 12,336 4,803 156.83%

Profit/(loss) attributable to equity holders 12,005 4,854 147.31%

EPS (RMB) 1.03 0.41 151.22%

010,00020,00030,00040,00050,00060,00070,00080,00090,000

2009 2010Passenger Cargo

16

Optimizing Capacity Deployment and Enhancing Passenger and Cargo Services Synergy

Revenue Breakdown: RMB millionRevenue

BreakdownPassenger Services

YoYChange

Cargo Services

YoYChange Total YoY

Change

Domestic 45,515 69.85% 2,648 109.66% 48,163 71.64%(%) 66.80 4.04pts 26.29 2.88pts 61.58 3.23pts

International 18,961 41.48% 6,873 79.40% 25,834 49.91%

(%) 27.83 -3.65pts 68.24 -2.75pts 33.03 -2.8pts Regional 3,661 46.62% 551.41 82.45% 4,212 50.48%(%) 5.37 -0.48pts 5.47 -0.13pts 5.39 -0.43pts

RMB million 2010 Passenger Revenue Breakdown

Domestic International Regional2009 2010

12.88%

88.78%

11.22%87.12% 35.83% 58.35%

5.82%

33.03%61.58%

5.39%

17

2010

Take-off,Landing and

Depotcharges10.8%

Depreciation12.0%

Maintenance3.6%

Staff13.8%

Leasing4.9%

Other flightoperationexpenses

11.5%Catering

2.9%Others

(includinggain from

change in fairvalue)7.0%

Jet Fuel33.7%

Cost Pressure from Jet Fuel Price Surge

(RMB million) 2010 2009 YoYChange

Jet fuel 24,096 14,466 66.57%

Gain/loss from change in fair value -1,954 -2,758 -29.15%

Take-off, landing and depot charges 7,707 5,789 33.14%

Depreciation 8,569 7,051 21.53%

Maintenance 2,577 1,768 45.78%

Staff 9,852 6,627 48.65%

Leasing 3,488 2,319 50.40%

Air Catering 2,044 1,519 34.59%

Other flight operation expenses 8,228 4,532 81.54%

Others 6,953 4,579 51.84%

Total 71,560 45,892 55.93%

0

1,000

2,000

3,000

4,000

5,000

6,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2010 2009

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2010 2009

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2010 2009

05

1015202530

2005 2006 2007 2008 2009 2010

Fuel Costs Jet Fuel Surcharge

Higher Jet Fuel Cost with Uncertainties in Future Price Trend

Fuel Costs and Jet Fuel Surcharge

RMB/Tonne RMB/Tonne

Average Domestic International

2010 Average: 5,740

2009 Average: 4,728

2010 Average: 5,082

2009 Average: 4,069

Changes in Jet Fuel Purchase Price

RMB million

RMB/Tonne

2010 Average: 5,588

2009 Average: 4,583

18

26,700 30,28440,101 31,426

47,464

15,716 17,201

22,614

14,466

24,096

0

20,000

40,000

60,000

80,000

2006 2007 2008 2009 2010

Operating cost excluding fuel cost Fuel cost

0.51 0.53 0.68 0.47 0.54

3.04 3.18

4.28

2.983.46

0

1

2

3

4

5

2006 2007 2008 2009 2010Cost per ATK Cost per ASK

0.32 0.35 0.44 0.32 0.36

1.91 2.072.74

2.04 2.3

0

1

2

3

4

5

2006 2007 2008 2009 2010Ex-fuel cost per ATK Ex-fuel cost per ASK

19

Enhanced Cost Efficiency

42,41647,485

62,715

45,892

71,560

92.53%86.75%89.30%

118.54%94.40%

59.42%59.01%

75.79%61.15% 57.54%

40%

60%

80%

100%

120%

2006 2007 2008 2009 2010

Operating cost as % of revenueEx-fuel operating cost as % of revenue

Ex-fuel Unit Cost

Unit Cost

Cost as Percentage of Revenue

Fuel Cost and Non-fuel CostRMB million RMB

RMB

Margins and Returns

20

2010 2009 YoY Change

EBITDA (RMB million) 19,497 12,552 55.33%

EBITDA margin (%) 23.64% 24.42% -0.78pts

EBITDAR (RMB million) 23,697 15,349 54.39%

EBITDAR margin (%) 28.73% 29.87% -1.14pts

Operating profit margin (%) 13.25% 10.70% 2.55pts

Pre-tax profit margin (%) 17.98% 9.86% 8.12pts

Net profit margin (%) 14.55% 9.45% 5.1pts

ROE (%) 36.74% 22.14% 14.6pts

62.4 66.3279.63 77.8 73.94

0

20

40

60

80

100

2006 2007 2008 2009 2010

4.15 4.80

8.89

12.12

-1.63

-4

0

4

8

12

16

2006 2007 2008 2009 2010

0.941.15

2.50 2.54

1.72

0

1

2

3

2006 2007 2008 2009 2010

21

%

31,736 31,507

23,916

41,438

19,943

0

7,000

14,000

21,000

28,000

35,000

42,000

2006 2007 2008 2009 2010

Financial Strength and Healthy Capital Structure

Net Debt to Equity Ratio

Net Assets(Excludes minority interest)

Total Debt to Asset Ratio

EBITDA Interest Cover Ratio

(x)

(x) (RMB million)

Part 4

Outlook

23

Opportunities Challenges

Sustained global economic recovery and continued rapid economic growth in China

Continued growth in air travel, balancing capacity and demand

Increased market concentration; stabilizing and improving yield

Synergies created by member airlines within Air China Group

Accelerated consolidation in global airline industry; intensified competition

Impacts from high-speed rail with full HSR coverage in near future

Insufficiency of core aviation resources

Uncertainties from fluctuations in jet fuel prices, exchange rates and interest rates

2011: Business Environment

2011: New Developments

Business

Improving operational efficiency of hubs

Enhancing sales and marketing efforts in international market

Speeding up introduction of wide-body aircraft, delivery of five A330 and four B777 wide-body aircraft in 2011

Annual capital expenditure RMB23.6 billion; 86% invested in aircraft

Shenzhen Airlines

Optimizing market structure and layout and improving efficiency

Improving marketing collaboration to strengthen market controlling power

Creating comprehensive synergy with Air China

CargoOperation model: “air network + hub cargo terminal + truck network”

Improving marketing and service standards

ServiceCustomer-oriented service promoting Customer Service Management solutions

Service upgrade for e-commerce, irregular flight information transfer and seven other service projects

24

2011-2015 Five-year Plan

Strategic Positioning: Large-scale network carrier with sustained growth

Strategic Objective: Top-tier international airline with strong competitive edge for further developmentOffer customers with exceptional experience, catering to the interest of all relevant parties

Targets for Development Objectives:Become one of the world’s top six airlines with significantly increased international competitiveness Balance domestic and international development, building a network with a composite hub in Beijing, a regional hub in Chengdu, an international gateway in Shanghai, and Shenzhen as a supportive hub in southern ChinaBuild three main businesses: passenger, cargo and aircraft maintenance

25

Appendix

Other Financial and Operational Data

*Wet lease aircraft excluded in calculation of average ages

2010 Delivery

Sub-total Owned Finance Lease

Operating Lease

Average Age 2011 2012 2013

A319 33 21 9 3 5.7 0 0 0

A320/A321 44 8 24 12 2.8 * 14 14 10

A330 23 3 17 3 3.1 5 6 9

A340 6 5 1 0 12.6 0 0 0

B737 127 56 22 49 7.2 * 9 9 11

B747 9 7 2 0 13.7 0 0 0

B757 11 11 0 0 16.0 0 0 0

B767 5 5 0 0 15.9 0 0 0

B777 10 6 4 0 10.9 4 6 6

TU204 1 1 0 0 2.2 0 0 0

B747F 9 7 0 2 16.0 1 2 0

Business jet 4 0 0 4 1.4 3 0 0

TOTAL 282 130 79 73 7.4 36 37 36

1 Fleet – Air China

27

2 Fleet – Shenzhen Airlines

2010 Delivery

Sub-total Owned Financial Lease

Operating Lease

Average Age 2011 2012 2013

A319 5 3 0 2 4.7 0 0 0

A320 38 28 0 10 2.4 9 12 7

B737 56 22 5 29 7.6 10 6 10

TOTAL 99 53 5 41 5.2 19 18 17

28

3 Consolidated Balance Sheet (Condensed)

(RMB million) As of Dec 31, 2010 As of Dec 31, 2009 YoY Change

Non-current assets 96,153 75,045 28.13%

– Aircraft 82,655 65,007 27.15%

– Property 5,876 3,676 59.85%

Current assets 22,979 8,551 168.74%

– Cash and cash equivalents 14,402 2,707 432.07%

Total assets 158,774 107,919 47.12%

Current liabilities 52,389 37,199 40.84%

Non-current liabilities 65,014 46,766 39.02%

Total liabilities 117,403 83,965 39.82%

Shareholders’ equity 41,371 23,954 72.71%

29

4 Consolidated Cash Flow Statement (Condensed)

(RMB million) 2010 2009 YoY Change

Net cash flow from operating activities 18,366 5,465 236.07%

Net cash flow from investing activities -14,058 -12,666 10.99%

Net cash flow from financing activities 7,463 6,948 7.41%

Net increase/(decrease) in cash and cash equivalents 11,771 -252 4671.03%

Cash and cash equivalents at beginning of year 2,676 2,949 -9.26%

Effect of exchange rate changes on cash and cash equivalents -71 -20 255.00%

Cash and cash equivalents 14,376 2,676 437.22%

30

5 Consolidated Borrowings and Obligations

31

RMB million(as of Dec 31, 2010)

Sub-total RMB denominated

USD denominated

HKDK denominated

EUR denominated

Bank loans and notes 59,029 8,801 44,177 5,846 206

Finance lease obligation 18,285 829 17,456

Bond 9,000 9,000

Total 86,314 18,629 61,633 5,846 206

Weight (%) 100 21.6 71.4 6.8 0.2

Investor Relations – BeijingRao Xinyu

Tel: +8610-6146 2777

Fax: +8610-6146 2805

E-mail: [email protected]

Wang Kai

Tel: +8610-6146 2799

Fax: +8610-6146 2805

E-mail: [email protected]

Website: www.airchina.com.cn