Air China Regulatory News (AIRC)

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中國國際航空股份有限公司

AIR CHINA LIMITED

(a joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 00753)

2019 ANNUAL RESULTS

FINANCIAL HIGHLIGHTS

• During the Reporting Period, the Group recorded a revenue of RMB136,181 million with profit before tax of RMB9,120 million. The net profit attributable to equity shareholders of the Company was RMB6,420 million.

• The Board recommends the payment of a cash dividend of RMB0.4442 (including tax) for every ten shares for the year 2019, totaling approximately RMB645 million based on the current total issued shares of 14,524,815,185 shares of the Company.

2019 ANNUAL RESULTS

The Board hereby announces the audited consolidated financial results of the Group for the year ended 31 December 2019 together with the corresponding comparative figures for the year ended 31 December 2018 as follows:

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2019

Other comprehensive income (expense)

Items that will not be reclassified to profit or loss:

- Fair value gains/(losses) on investments in equity instruments

Items that may be reclassified subsequently to profit or loss:

- Fair value gains on investments in debt instruments measured

at fair value through other comprehensive income 3,551 18,878

- Impairment loss on investments in debt instruments measured

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 31 DECEMBER 2019

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2019

1. BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") issued by the International Accounting Standards Board ("IASB"). In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited ("Listing Rules") and by the Hong Kong Companies Ordinance ("Companies Ordinance").

The consolidated financial statements have been prepared on the historical cost basis, except for certain financial instruments that are measured at fair values. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

As at 31 December 2019, the Group's current liabilities exceeded its current assets by approximately RMB53,156 million. The liquidity of the Group is primarily dependent on its ability to maintain adequate cash inflows from operations and sufficient financing to meet its financial obligations as and when they fall due. Considering the Company's sources of liquidity and the unutilised bank facilities of RMB109,437 million as at 31 December 2019, the Directors believe that adequate funding is available to fulfil the Group's debt obligations and capital expenditure requirements when preparing the consolidated financial statements for the year ended 31 December 2019. Accordingly, the consolidated financial statements have been prepared on a basis that the Group will be able to continue as a going concern.

2. APPLICATION OF NEW AND AMENDMENTS TO IFRSs

New and Amendments to IFRSs that are mandatorily effective for the current year

The Group has applied the following new and amendments to IFRSs issued by the IASB for the first time in the current year:

IFRS 16 Leases

IFRIC 23 Uncertainty over Income Tax Treatments

Amendments to IAS 19 Plan Amendment, Curtailment or Settlement

Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures

Amendments to IFRSs Annual Improvements to IFRS Standards 2015-2017 Cycle

Except as described below, the application of the new and amendments to IFRSs in the current year has had no material impact on the Group's financial positions and performance for the current and prior years and/or on the disclosures set out in these consolidated financial statements.

IFRS 16 Leases

The Group has applied IFRS 16 for the first time in the current year. IFRS 16 superseded IAS 17 Leases

("IAS 17"), and the related interpretations.

Definition of a lease

The Group has elected the practical expedient to apply IFRS 16 to contracts that were previously identified as leases applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a Lease and not apply this standard to contracts that were not previously identified as containing a lease. Therefore, the Group has not reassessed contracts which already existed prior to the date of initial application.

For contracts entered into or modified on or after 1 January 2019, the Group applies the definition of a lease in accordance with the requirements set out in IFRS 16 in assessing whether a contract contains a lease.

As a lessee

The Group has applied IFRS 16 retrospectively with the cumulative effect recognised at the date of initial application, 1 January 2019.

When applying the modified retrospective approach under IFRS 16 at transition, the Group applied the following practical expedients to leases previously classified as operating leases under IAS 17, on lease- by-lease basis, to the extent relevant to the respective lease contracts:

i. relied on the assessment of whether leases are onerous by applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets as an alternative of impairment review;

ii. elected not to recognise right-of-use assets and lease liabilities for leases with lease term ends within 12 months of the date of initial application;

iii. excluded initial direct costs from measuring the right-of-use assets at the date of initial application;

iv. applied a single discount rate to a portfolio of leases with a similar remaining terms for similar class of underlying assets in similar economic environment; and

v. used hindsight based on facts and circumstances as at date of initial application in determining the lease term for the Group's leases with extension and termination options.

When recognising the lease liabilities for leases previously classified as operating leases, the Group has applied incremental borrowing rates of the relevant group entities at the date of initial application. The weighted average incremental borrowing rates applied by the relevant group entities range from 3.90% to 4.89%.

Lease liabilities relating to operating leases recognised upon

application of IFRS 16 40,575,280

Add: Obligations under finance leases recognised at 31 December

The carrying amount of right-of-use assets as at 1 January 2019 comprises the following:

Right-of-use

assets

Notes RMB'000

Right-of-use assets relating to operating leases recognised upon

application of IFRS 16 (a) 34,107,831Reclassified from prepayments for rental expense 559,580Reclassified from other non-current assets and deferred income in

respect of sale and operating leaseback transactions (b) (52,522)Recognition of provisions in respect of final check costs 2,377,798Reclassified from lease prepayments (c) 2,599,058Amounts included in property, plant and equipment under IAS 17

- Assets previously under finance leases (d) 69,288,713

108,880,458

Notes:

(a) Upon application of IFRS 16, right-of-use assets of RMB34,108 million were recognised relating to operating leases under IAS 17. The associated right-of-use assets for aircraft and engines leases were measured on a retrospective basis as if IFRS 16 had been applied since the commencement date but discounted using the lessee's incremental borrowing rate at the date of initial application. Other right-of-use assets were measured at the amount equal to the lease liabilities, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised as at 31 December 2018 as described below. Any difference at the date of initial application is recognised in the opening retained earnings and comparative information has not been restated.

(b) Right-of-use assets were adjusted by the deferred income of RMB147 million and other non-current assets of RMB94 million respectively in respect of sale and operating leaseback transactions applying IAS 17 immediately before the date of initial application of IFRS 16.

(c) Upfront payments for leasehold lands in the PRC were classified as lease prepayments as at 31 December 2018. Upon application of IFRS 16, lease prepayments amounting to RMB2,599 million were reclassified to right-of-use assets.

(d) In relation to assets previously obtained under finance leases, the Group re-categorised the carrying amount of the relevant assets which were still under leases as at 1 January 2019 amounting to RMB69,289 million as right-of-use assets. In addition, the Group reclassified the obligations under finance leases of RMB7,126 million and RMB45,848 million to lease liabilities as current and non- current liabilities respectively at 1 January 2019.

As a lessor

In accordance with the transitional provisions in IFRS 16, the Group is not required to make any adjustment on transition for leases in which the Group is a lessor but account for these leases in accordance with IFRS 16 from the date of initial application and comparative information has not been restated.

Sales and leaseback transactions

The Group acts as a seller-lessee

In accordance with the transition provisions of IFRS 16, sale and leaseback transactions entered into before the date of initial application were not reassessed. Upon application of IFRS 16, the Group applies the requirements of IFRS 15 to assess whether sales and leaseback transaction constitutes a sale.

The following table summarises the impact of transition to IFRS 16 on retained earnings at 1 January 2019.

Impact of adopting

IFRS 16 at

1 January 2019

RMB'000

Retained earnings

Recognition of right-of-use assets relating to operating leases 34,107,831

Recognition of lease liabilities relating to operating leases (40,575,280)

The impact arising from initial application of IFRS 16 by associates (1,175,623)

Impact before tax (7,643,072)

Tax effects 1,553,393

Reserve funds 456,307

Non-controlling interests 528,826

Impact at 1 January 2019 (5,104,546)

The following adjustments were made to the amounts recognised in the consolidated statement of financial position at 1 January 2019. Line items that were not affected by the changes have not been included.

New and amendments to IFRSs in issue but not yet effective

The Group has not early applied the following new and amendments to IFRSs that have been issued but are not yet effective:

IFRS 17 Insurance Contracts1

Amendments to IFRS 3 Definition of a Business2

Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor

and its Associate or Joint Venture3

Amendments to IAS 1 Classification of Liabilities as Current or Non-current5

Amendments to IAS 1 and IAS 8 Definition of Material4

Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform4

1 Effective for annual periods beginning on or after 1 January 2021.

2 Effective for business combination and asset acquisitions for which the acquisition date is on or after the beginning of the first annual period beginning on or after 1 January 2020.

3 Effective for annual periods beginning on or after a date to be determined.

4 Effective for annual periods beginning on or after 1 January 2020.

5 Effective for annual periods beginning on or after 1 January 2022.

In addition to the above new and amendments to IFRSs, a revised Conceptual Framework for Financial Reporting was issued in 2018. Its consequential amendments, the Amendments to References to the Conceptual Framework in IFRS Standards, will be effective for annual periods beginning on or after 1 January 2020.

The Directors anticipate that the application of all new and amendments to IFRSs that have been issued but are not yet effective will have no material impact on the consolidated financial statements in the foreseeable future.

3. REVENUE

2019 2018

RMB'000 RMB'000

Revenue from contracts with customers 135,898,971 136,537,210

Rental income (included in revenue of airline operations segment) 281,719 237,193

Total revenue 136,180,690 136,774,403

Disaggregation of revenue from contracts with customers

Airline operations Other operations Airline operations Other operations

RMB'000 RMB'000 RMB'000 RMB'000

Type of goods or services

Airline operations

Other operations

Performance obligations for contracts with customers

Passenger revenue is recognised when transportation services are provided. Besides, the Group recognises the expected breakage amount as passenger revenue in proportion to the pattern of rights exercised by the passenger (or flown revenue) based on historical experience. Ticket sales for transportation not yet provided are recorded in air traffic liabilities.

The Group operates frequent-flyer programme and provides free services or products to the customers according to the miles they earn. The Group allocates the transaction price to each performance obligation on a relative stand-alone selling price basis. The amount allocated to the miles earned by the frequent-flyer programme members is recorded in contract liabilities and deferred until the miles are redeemed when the Group fulfils its obligations to supply services or products or when the miles expire. During the year, the Group recognised revenue of RMB2,304 million (2018: RMB1,701 million) which was included in contract liabilities in relation to frequent-flyer programme at the beginning of the year.

Cargo and mail revenue is recognised when transportation services are provided.

Revenue from other airline-related services is recognised when the related performance obligations are satisfied.

Sale of goods is recognised when control of the goods has transferred to the customer, being at the point the goods are delivered to the customer.

Transaction price allocated to the remaining performance obligation for contracts with customers

The customer loyalty points in frequent-flyer programme have a three-year term and these points can be redeemed anytime at customers' discretion during the valid period.

4. SEGMENT INFORMATION

The Group's operating businesses are structured and managed separately, according to the nature of their operations and the services they provide. The Group has the following reportable operating segments:

(a) the "airline operations" segment which mainly comprises the provision of air passenger and air cargo services; and

(b) the "other operations" segment which comprises the provision of aircraft engineering, import and export services and other airline-related services.

Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices.

Operating segments

The following tables present the Group's consolidated revenue and profit before taxation regarding the Group's operating segments in accordance with the Accounting Standards for Business Enterprises of the PRC ("CASs") for the years ended 31 December 2019 and 2018 and the reconciliations of reportable segment revenue and profit before taxation to the Group's consolidated amounts under IFRSs:

Effect of differences between IFRSs

and CASs 15,624

Profit before taxation for the year

under IFRSs 9,120,263

Effect of differences between IFRSs

and CASs 19,112

Profit before taxation for the year

under IFRSs 9,977,017

The following tables present the segment assets, liabilities and other information of the Group's operating segments under CASs as at 31 December 2019 and 2018 and the reconciliations of reportable segment assets, liabilities and other information to the Group's consolidated amounts under IFRSs:

Airline Otheroperations operations Elimination Total

RMB'000 RMB'000 RMB'000 RMB'000

Segment assets

Total assets for reportable segments as at 31 December 2019 under

CASs 286,516,534 25,238,859 (17,501,840) 294,253,553

Effect of differences between IFRSs

Effect of differences between IFRSs

and CASs (58,898)

Total assets under IFRSs 243,657,108

Airline Otheroperations operations Elimination Total

RMB'000 RMB'000 RMB'000 RMB'000

Segment liabilities

Total liabilities for reportable segments as at 31 December 2019

under CASs and IFRSs 194,202,329 15,917,668 (17,243,087) 192,876,910

Total liabilities for reportable segments as at 31 December 2018

under CASs and IFRSs 144,807,641 13,576,780 (15,225,347) 143,159,074

Year ended 31 December 2019

Airline Other Effect of operations operations Elimination Total differences Amounts

between IFRSs under IFRSs and CASs

RMB'000 RMB'000 RMB'000 RMB'000 RMB'000 RMB'000

Other segment information

Geographical information

The following table presents the Group's consolidated revenue under IFRSs by geographical location for the years ended 31 December 2019 and 2018, respectively:

In determining the Group's geographical information, revenue is attributed to the segments based on the origin or destination of each flight. Assets, which consist principally of aircraft and ground equipment, supporting the Group's worldwide transportation network, are mainly registered/located in Mainland China. According to the business demand, the Group needs to flexibly allocate different aircraft to match the need of the route network. An analysis of the assets of the Group by geographical distribution has therefore not been included.

There was no revenue from transactions with a single customer amounting to 10% or more of the Group's revenue during the year ended 31 December 2019 (2018: Nil).

The interest capitalisation rates during the year ranged from 3.14% to 4.75% (2018: 2.67% to 4.75%) per annum relating to the costs of related borrowings during the year.

On 21 March 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No.7) Bill 2017 (the "Bill") which introduced the two-tiered profits tax rates regime. The Bill was signed into law on 28 March 2018 and was gazetted on the following day. Under the two-tiered profits tax rates regime, the first HK$2 million of profits of the qualifying group entity will be taxed at 8.25% and profits above HK$2 million will be taxed at 16.5%. The profits of group entities not qualifying for the two-tiered profits tax rates regime will continue to be taxed at a flat rate of 16.5%.

Accordingly, starting from the prior year, the Hong Kong SAR profits tax is calculated at 8.25% on the first HK$2 million of the estimated assessable profits and at 16.5% on the estimated assessable profits above HK$2 million.

Under the relevant Corporate Income Tax Law and regulations in the PRC, except for two branches and two subsidiaries which are taxed at a preferential rate of 15% (2018: 15%), all group companies located in Mainland China are subject to a corporate income tax rate of 25% (2018: 25%) during the year. Subsidiaries in Hong Kong SAR, China are taxed at corporate income tax rates of 8.25% and 16.5% (2018: 8.25% and 16.5%) and subsidiaries in Macau SAR, China are taxed at corporate income tax rate of 12% (2018: 12%).

In respect of majority of the Group's overseas airline activities, the Group has either obtained exemptions from overseas taxation pursuant to the bilateral aviation agreements between the overseas governments and the PRC government, or has sustained tax losses in these overseas jurisdictions. Accordingly, no provision for overseas tax has been made for overseas airlines activities in the current and prior years.

The taxation for the year can be reconciled to the profit before taxation per consolidated statement of profit or loss as follows:

2019 2018

RMB'000 RMB'000

Profit before taxation 9,120,263 9,977,017

Tax at the applicable tax rate of 25% 2,280,066 2,494,254

Preferential tax rates on income of group entities (113,980) (136,952)

Tax effect of share of profits less losses of associates and joint

ventures (118,815) (187,199)

Tax effect of non-deductible expenses 100,099 65,086

Tax effect of non-taxable income (30,749) (255,466)Deductible temporary differences and tax losses not recognised 613 15,847Utilisation of tax losses not recognised in prior years (18,180) (106,952)

Utilisation of deductible temporary differences not recognised in

prior years (247,737) (113,028)

Under/(over)-provision in respect of prior years 5,182 (13,444)

Taxation for the year 1,856,499 1,762,146

9. EARNINGS PER SHARE

The calculation of the basic and diluted earnings per share attributable to equity shareholders of the Company is based on the following data:

The number of ordinary shares for the purpose of basic and diluted earnings per share is calculated based on the number of ordinary shares in issue during the year, as adjusted to reflect the number of treasury shares held by Cathay Pacific through reciprocal shareholding

The Group had no potential dilutive ordinary shares in issue during both years.

10. DIVIDENDS

Dividends for the shareholders of ordinary shares of the Company recognised as distribution during the year:

2019 2018

RMB'000 RMB'000

Final dividend in respect of the previous financial year, approved during the current year, of RMB1.0328 per ten shares (including

tax) (2018: RMB1.1497 per ten shares (including tax)) 1,500,123 1,669,918

Subsequent to the end of the reporting period, final dividend in respect of the year ended 31 December 2019 of RMB0.4442 per ten ordinary shares (approximately RMB645 million in aggregate for ordinary shares) has been proposed by the Directors and is subject to approval by the shareholders at the forthcoming annual general meeting.

The ageing analysis of the accounts receivable as at the end of the reporting period, based on the transaction date, net of allowance for expected credit losses, was as follows:

12. ACCOUNTS PAYABLE

The ageing analysis of the accounts payable as at the end of the reporting period was as follows:

The accounts payable are non-interest-bearing and have normal credit terms up to 90 days.

CONSOLIDATED BALANCE SHEET

At 31 December 2019

(Prepared under the Accounting Standards for Business Enterprises of the PRC)

EFFECTS OF DIFFERENCES BETWEEN IFRSs AND CASs

The effects of differences between the consolidated financial statements of the Group prepared under IFRSs and CASs are as follows:

SUMMARY OF OPERATING DATA

The following is the operating data summary of the Company, Shenzhen Airlines (including Kunming Airlines), Air Macau, Beijing Airlines, Dalian Airlines and Air China Inner Mongolia.

Current Previous Increase/period period (decrease)

Capacity

Load factor

Yield

Unit cost

Note: As at 28 December 2018, the Company completed the relevant matters in relation to the transfer of 51% equity interest in Air China Cargo to China National Aviation Capital Holding Co., Ltd., and since then the Company ceased to hold any equity interest in Air China Cargo. Thus, from January 2019, the periodic reports of the Company no longer contained fleet information of Air China Cargo and the operating data would only include freight data of the bellyhold space of passenger aircraft. Also, the freight data, yield and unit cost of the previous period would no longer contain Air China Cargo's freight data of its freighters, and shall be adjusted to a comparable basis.

Fleet Information

During the year of 2019, the Group introduced a total of 48 aircraft, including four A350, one A330- 300, two B737-8MAX, four B737-800, thirty A320NEO and seven A321NEO, among which one was bought with our own funds, 27 were introduced under finance leases and 20 were introduced under operating leases. On the other hand, the Group phased out 18 aircraft, including twelve B737-800, four A320 and two A319.

As at the end of 2019, the Group had a total of 699 passenger aircraft including business jets, with an average age of 6.96 years. Among the aircraft set out above, the Company operated a fleet of 426 aircraft in total, with an average age of 7.25 years. The Company introduced 29 aircraft and phased out 12 aircraft, among which two were sold to Air Macau, two were sold to Dalian Airlines and two were sold to Air China Inner Mongolia.

Details of the fleet of the Group are set out in the table below:

Finance

Operating

Average

Introduction Plan Phase-out Plan

Note: Please refer to the actual operation for the introduction and phase-out of the Group's fleet in the future.

2019 REVIEW

2019 was a crucial year for completing the building of a moderately prosperous society in all respects. Under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the Group faithfully fulfilled its political and social responsibilities as a central enterprise. In doing so, the Group earnestly studied and implemented the important instructions of General Secretary Xi Jinping, resolutely carried out the decisions and arrangements of the Central Committee of the Party and the State Council, and adhered to new development philosophy and requirements of high-quality development. With a commitment to becoming a world's leading enterprise, the Group capitalized on opportunities and surmounted difficulties to maintain safe and stable operation and improved its service quality on a continuous basis. Thus, the Group stayed at the forefront of the industry in terms of operating performance with strengthened competitive advantages. At the same time, positive and stable development was sustained in all aspects and new progress in high-quality development was achieved.

In 2019, the Group's revenue amounted to RMB136,181 million with a profit before tax of RMB9,120 million. Net profit attributable to equity shareholders of the Company was RMB6,420 million. The Group recorded 2.285 million accident-free flight hours, representing a year-on-year increase of 4.12%; traffic measured by RTK reached 25,364 million tonne kilometres, representing a year-on-year increase of 3.50%; 115 million passengers were carried, representing a year-on-year increase of 4.81%; the volume of cargo and mail carried amounted to 1,434.2 thousand tonnes, down by 1.83% on a year- on-year basis.

The Group stayed committed to the overarching principle of pursuing progress while ensuring stability. Amidst the increasingly complicated operating environment, the Group continued to push forward and deepen its reform and enhanced its growth momentum steadily, industry leading operating result was thus maintained. The Group continued to optimise the operation of the entire fleet in order to eliminate the impact of insufficient capacity, and continued to align its investments closely with market demand, thereby improving its resource utilization efficiency. Focusing consistently on the establishment of world-class hubs, the Group has delivered satisfactory results in the quick-profiting projects with solid progress achieved in network expansion. The Group continued to strengthen its marketing control capacity and deepen the transformation of its business model while reinforcing the refined management of yield and enhancing its competitive edges in marketing quality. In advancing its premium brand strategy, the Group has enhanced the synergy of its service provision with a focus on flight punctuality management, which significantly improved the quality of its operation and services. Meticulous arrangements have been made for the first flight and commencement of operation at Daxing Airport, ensuring safe and smooth operation in the two airports in Beijing. In response to the "Belt and Road" Initiative, the Group newly launched 9 international and regional routes such as Beijing-Nice, Shanghai-London and Hangzhou-Rome, and continued to extend the breadth and frequency of the route network of Beijing Hub. The Group also pushed forward the digital transformation and formed a leadership role in experience-oriented services. The Group has garnered 63.5953 million "Phoenix Miles" members, with a 5% year-on-year increase in revenue contributed by frequent fliers; while the number of mobile client users and the relevant sales revenue exceeded 10 million and RMB10 billion, respectively. The Group has devoted greater efforts in brand communication, and participated in the second China International Import Expo and supported the organization of Beijing Winter Olympic Games and International Horticultural Exhibition. The Group also carried out joint marketing and promotion, thereby significantly enhancing the brand recognition and influence of the Company.

The Group forged ahead in the three critical battles and achieved positive progress. Owing to the Group's full devotion to poverty alleviation, Sonid Right Banner, an aid recipient county, has been lifted from poverty, while Zhaoping county has attained its annual target for poverty alleviation. The Group was rated "Excellent", the highest grade, in the assessment of its targeted poverty alleviation work by the central government for two consecutive years. To actively prevent and control material risks, the Group enhanced its capability in risk compliance management, reinforced the foundation for system management and further promoted the development of its internal audit system. The construction of rule of law progressed smoothly. Law-based corporate governance and compliant operation became the general consensus among all staff members. With a commitment to winning the Blue Sky Defense War, the Group optimized its energy-saving and environmental protection management system, and propelled the implementation of energy-saving and emission reduction projects. The Company won the 10th China Environmental Award, and was distinguished as an exemplary company in the special industry inspection.

With a focus on tasks in relation to the state-owned enterprise reform, the Group implemented the

requirements under the "two principles that must be consistently adhered to" 「( 兩個一以貫之原則」) to

facilitate the incorporation of the guidance of the Communist Party into its corporate governance and step up the efforts in the regulated development of the Board, with a view to ensuring the coordinated operation, scientific decision-making and stable development of various governance bodies. The Board of the Company was once again honoured with the "Best Board of Directors" award of the 15th Golden Round Table Award of the Board of Directors of Chinese Listed Companies, and won the "Best Listed Company in terms of Corporate Governance" and "Listed Company with Best Investment Value" awards from the 9th Golden Bauhinia Awards for Hong Kong and China Securities.

In response to the successive outbreak of novel coronavirus pneumonia pandemic in various regions at the beginning of 2020, the Group spared no effort in prevention and control of the pandemic in the bid to maximize the protection of health and safety of its passengers and employees. The Group earnestly performed its social responsibilities at the same time to contribute to this battle against the pandemic. The Group also strived to minimize the impact of the pandemic by adjusting its capacity structure, optimizing yield management, strengthening cost control, and placing more emphasis on risk management and control. We believe that, under the leadership of the Central Committee of the Party and with the nationwide endeavors of the public on a united front, we will surely be able to triumph over this battle of containing the pandemic.

The year of 2020 is the finale year for the 13th Five-year Plan, as well as a critical year for completing the building of a moderately prosperous society in all respects and achieving the first centenary goal. Faced with the missions, risks and challenges posed by the current situation, the Group will unite more closely around the Central Committee of the Party with President Xi Jinping at the core, and make concerted and aggressively excelling efforts to drive the modernization of its governance system and capability. The Group will also leverage its remarkable operation performance to lay a solid foundation for establishing itself as a top-tier global aviation transportation group, and make greater contributions to the great accomplishment of completing the building of a moderately prosperous society in all respects.

BUSINESS OVERVIEW

In 2019, the Group recorded a revenue of RMB136,181 million, a profit before tax of RMB9,120 million and a net profit attributable to equity shareholders of the Company of RMB6,420 million. The competitiveness of our core business was consolidated and improved. We have steadily expanded the fleet investment scale, strengthened the restructuring of operation resources, continuously enhanced the capacity input, diligently exploited the potential of production and insisted on "optimising the operation of the entire fleet", and continued to enhance aircraft utilization efficiency. By insisting on new development concepts and focusing on high quality development, the Company continuously improved the operating quality, strengthened the refined cost management, and continued to maintain its leading advantages in the industry.

In 2019, the Group's ASKs and RPKs reached 287,788 million and 233,176 million, representing a year-on-year increase of 5.19% and 5.74%, respectively. The passenger load factor was 81.02%, representing a year-on-year increase of 0.42 ppt. The Group's AFTKs and RFTKs reached 10,952 million and 4,779 million, representing a year-on-year increase of 2.25% and a year-on-year decrease of 3.61%, respectively. The Group's cargo and mail load factor was 43.63%, representing a year-on- year decrease of 2.66 ppt.

Safe Operation

• We are well aware that safety responsibility is also a kind of political responsibility, and the guarantee for safe flight underlies the foundation of the Group's original aspiration and mission. We further promoted the implementation of 30 measures aiming at ensuring sustainable and safe development by firmly establishing the concept of safe development and holding the bottom line of safety.

• The Company devoted greater efforts in the development of systems and mechanisms in order to reinforce the foundation of its safe development. We have optimized the security risk management and control mechanism by promoting the development of a three-level risk management and control system. We have also improved the flight training system through the adoption of the new Flight Standard Operating Procedure Manual (SOP), thereby consolidating our business foundation on a continuous basis. A new system for AGS flight quality supervision has been applied to further enhance the management and control capability over the operation process. Moreover, the Company optimized the aircraft maintenance system by promoting the integration of maintenance quality management system and improving the preventive maintenance services. AMECO was awarded the maintenance license issued by the Civil Aviation Administration of China after the reform of "integrating certificates into one". Meanwhile, the Company also optimized the operational system by enhancing the function of its system operation control (SOC) system more rapidly, and by facilitating the upgrade of dynamic management model and flight dispatch and release model in an orderly manner.

•

• During the Reporting Period, the Group recorded 2.285 million safe flight hours, representing a year-on-year increase of 4.12%. 1,454.24 million safe flight kilometres were recorded, representing a year-on-year increase of 4.87%; 115 million passengers were transported safely, representing a year-on-year increase of 4.81%. The Company had successfully safeguarded the provision of important transportation services involved in various events such as the second "Belt and Road" Forum for International Cooperation, Beijing International Horticultural Exhibition, Conference on Dialogue of Asian Civilizations and the celebration of the 70th anniversary of the founding of the People's Republic of China.

Hub Network

• The Company's principal base is located at Beijing Capital International Airport, also known as "the first gateway to China", which has a unique and prime location advantage. During the Reporting Period, we actively promoted the renovation project for Terminal 3 and other construction projects including the fourth runway and the landside integrated transportation hub, with a view to establishing Beijing Capital International Airport as a world-class hub with unwavering efforts.

• Beijing World-class Hub newly launched international and domestic routes such as Beijing-Phnom Penh, Beijing-Nice, Beijing-Kashi and Beijing-Changzhi. Flight frequencies of Beijing-Shanghai, Beijing-Guangzhou and other routes were increased. The total OD connected by Beijing Hub increased to 6,332 and the number of persons who has received interlining services provided by the hub increased by 7% year-on-year. The all entrusted baggage through check services business covered 96% of total passengers who transit to China from the abroad via Beijing. Travel products for 144-hour visa-free transit in Beijing and the "Transit in Beijing" product package have been launched; and the number of product line under the joint transport product combining flight and ground transportation had increased to 33.

• Chengdu International Hub newly launched Chengdu-Bazhong-Shanghai, Chengdu-Wuyishan and other routes. Currently, there is a total of 39 navigation points for transiting to overseas countries via Chengdu. Various measures including priority security check channels for transit were launched, which led to a year-on-year increase of 6% in the number of transit passengers.

Leveraging the opportunities arising from the development of Chengdu New Tianfu International Airport (成都新天府機場), the Company has formulated plans for operation and route network for "two airports in one city", striving towards its development goal of becoming a top-tier aviation

hub in the world.

• The Company newly launched international and regional routes such as Shanghai-London, Hangzhou-Rome, Tianjin-Osaka, Yinchuan-Hong Kong, Chongqing-Tokyo, Chongqing-Okinawa, Hohhot-Ulaanbaatar and Wenzhou-Bangkok, as well as domestic routes such as Hohhot- Shenyang, Chongqing-Changchun, Zhengzhou-Yinchuan and Guiyang-Fuzhou.

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• As at the end of the Reporting Period, the Company, Shenzhen Airlines (including Kunming Airlines), Air Macau, Beijing Airlines, Dalian Airlines and Air China Inner Mongolia operated a total of 770 passenger routes, including 137 international routes, 27 regional routes and 606 domestic routes. The Company's passenger routes reached 43 countries and regions and 187 cities, including 65 international cities, 3 regions and 119 domestic cities. Through cooperation with members of Star Alliance, the Company has further expanded its service coverage to 1,317 destinations in 195 countries and regions.

• In 2020, the Company intends to launch new international and domestic routes such as Chongqing- San Francisco, Hangzhou-Tokyo, Beijing-Yan'an and Shanghai (Pudong)-Shenyang.

Products and Services

• The Company upheld the doctrine of offering sincere services and focused on the goal of building a "world-class model enterprise". During the Reporting Period, the Company further deepened the "three orientations" in terms of values, customers and issues, and implementing the "three comprehensive strategies" of global benchmarking, full-process governance and full- chain capacity. Refined measures such as raising the standards of service systems, improving the quality of hardware regarding service provision, upgrading soft services and products and developing professional service teams were implemented.

• From governance of business to governance of systems: With a commitment to keep abreast of global standards, the Company has comprehensively improved the quality of its three "principal products". The standards for allocation of aircraft seats and entertainment systems were released, striving to strengthen the management on its principal in-flight products throughout the product lifecycle at the system level. The Company also released the "General Rules for Standard System

of Products and Services at Touchpoints throughout the Whole Process (《全流程接觸點產品服務標準體系總則》)" with 106 standards for whole process product and service and the "Manual of Standards for Products and Services at Touchpoints throughout the Whole Process (《全流程接觸點產品服務標準手冊》)", signifying the completion of the establishment of whole process

product standard system.

• The Company has enhanced its internal and external synergistic coordination as well as management and control over various key aspects with a focus on flight punctuality management. The flight punctuality rate of the Company reached 81.83%.

• The renovation of old lounges and construction of new lounges have commenced and the lounge at Hangzhou airport was put into trial operation. Leveraging the resources of CNAHC, the Company has established a global catering supply management center and a cultural and entertainment brand under Air China, thereby improving the quality of its catering and aircraft entertainment in an all-rounded manner.

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• Beijing Hub has realized a new smart service model of "self-service-oriented, manual assisted" by setting up a "Self-service Area" for domestic routes, which was equipped with 40 self-service baggage check-in devices and facial recognition-based self-boarding devices. It has also promoted the "paperless" convenient travel service in full swing by putting into service the QR code e-boarding pass clearance service in 105 cities within China. Moreover, the first international route adopting "paperless" travel services was launched, i.e. the Beijing-Australia route.

• The Company has enriched the functions of Air China APP by launching various new functions, such as Air China's wallet and credit payment (國航錢包信用付), non-voluntary self-service flight-ticket changing, air-rail and air-bus interline operations, cross-platform ticket sales between

Air China and Shenzhen Airlines, and irregular flight services, which have integrated the whole service chain of and increased the scenarios through which services are provided on the APP.

• The Company has provided whole process training with full coverage to its service team to facilitate the improvement of their professionalism through mediums such as positional and vocational skill system and vocational skills contests.

Sales and Marketing

• The Company continued to explore potentials of its core resources. Adhering to the general guidelines of optimizing the operation of the entire fleet, we have strengthened the management over fleet value and established fixed flight cycle. Under the combined effects of various factors such as capacity shortage, sluggish international (regional) markets and major events, the daily utilisation of aircraft reached 9.72 hours, representing a year-on-year growth of 0.19 hours.

• The Company has strengthened the refined management of yield and optimized the pricing management system. Sales revenue recorded a year-on-year growth of 2.1%, while the revenue from its premium cabins services saw a 2.4% year-on-year increase. We strenuously promoted the Phase 2 business model transformation project and realized scenario-based payment services based on frequent fliers' credit points. To keep pace with the rapid upgrade of e-commerce platforms and websites, we also carried out over 30 iterative developments with over 1,900 improved and new functions, boosting the number of registered users of Air China APP to over 10 million with sales revenue exceeding RMB10 billion, representing a year-on-year growth of 39%.

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• The Company launched paid upgrade product at departure gates at 52 domestic airports and 16 international airports, and introduced products such as the Premium Economy Class for in- flight upgrade of economy class on the new A350 aircraft. We have also expanded the sales channel of paid seat selection and prepaid luggage. The number of persons who has received our travelling products and services increased by 52.4% year-on-year. During the Reporting Period, the accumulated sales revenue contributed by aviation-related income from ancillary products amounted to RMB360 million, representing a year-on-year increase of 57%, and the revenue generated from upgrade product, paid seat selection and prepaid luggage recorded a year-on-year growth of 103%, 21% and 33%, respectively.

• The Company has accelerated the application of innovative marketing and further promoted the transformation of its business models. New segments such as commission-based collaboration, attributable tenants and mileage payment were added to the loyalty point platform. Mileage payment business was introduced to 1,155 tenants or duty-free shops, marking continuous expansion of Air China's travel ecosystem.

• "Phoenix Miles" won the "Best Quality Frequent-flyer Program (最佳品質常旅客計劃)" award from Xinhua Net. As at the end of the Reporting Period, the total number of "Phoenix Miles"

members amounted to 63.5953 million. With the all-round upgrade of services offered to the frequent fliers, customer loyalty and stickiness also increased remarkably, leading to a year-on- year growth of 5% in the revenue contributed by frequent fliers.

Brand Value

• Air China positioned its brand as "professional and reliable with both international quality and Chinese temperament". By virtue of the immense historical heritage, we strive to create perfect travel experience and help passengers to stay safe by upholding the spirit of phoenix of being a practitioner, promoter and leader for the development of the Chinese civil aviation industry. The Company is also committed to leading the industrial development by establishing itself as a "National Brand", at the same time pursuing outstanding performance through innovative and excelling efforts.

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• The Company fulfilled its social and political responsibilities by participating in an array of activities, including the exhibition hall featuring "Wings of Dream (夢之翼)" of Beijing International Horticultural Exhibition, the Beijing 2022 Winter Olympic Games, the 2nd China International

Import Expo and the maiden flight of Beijing Daxing International Airport. The new version of "Panda" inflight safety instructions video was launched in an effort to reinforce a younger brand image of Air China. The brand culture was communicated and well-received by the public, which contributed to the enhancement of the Company's brand value. The brand communication project of Air China titled "Landing with Dreams" and the cultural innovation work in relation to the brand's IP image "Panda" have received a number of domestic and international awards, including the "2018 Brand Innovation Achievement of Chinese Enterprises - Innovative Brand

Culture and Innovative Brand Communication Award (2018年中國企業品牌創新成果品牌文化創新和品牌傳播創新獎)" from China Association for Quality, the 10th Tiger Roar Award - Silver Prize (第10屆虎嘯獎銀獎), the "Excellent Chinese Global Brand Award (中國出海品牌卓越獎)" for the thematic activity of "China Home (中國之家)" at Cannes Lions International Festival of Creativity, the "Best VR/AR" of 2019 Asia Pacific PR Award (亞太公關大獎「最佳 VR/AR 」 獎 ), and nomination for the "Best Enterprise Brand Communication on the Global Award List" by the PR Week (《公關週刊》全球榜單「最佳企業品牌傳播獎」) for 2019.

• Air China ranked 21st in the list of "Top 500 Most Valuable Chinese Brands 2019" released at the "16th World Brand Convention" of World Brand Lab with a brand value of RMB167.876 billion, which is the highest ranking among civil aviation companies in China. Air China also

ranked 281st among global brands in the "The World's 500 Most Influential Brands (世界品牌500強排行榜) released by World Brand Lab, up by 6 rankings as compared with last year, and

was the only Chinese civil aviation company on the list. Meanwhile, Air China received the "China No.1 Brand Award for Year 2019 (Aviation Services Industry) (2019中國品牌年度大獎NO.1 (航空服務行業)" and a special award named "2019 Cultural Brand Award (2019年文化品牌大獎)".

Three Critical Battles

• Leveraging the resources of CNAHC, the Company shouldered its corporate social responsibilities by implementing the "8+2" designated poverty alleviation plan. During the Reporting Period, the Company provided nil-consideration supporting funds of over RMB38.51 million to the designated poverty alleviation regions and carried out various supporting projects such as infrastructure construction as well as poverty alleviation through industry, education, health and ecological protection. Special surveys and researches for poverty alleviation have been conducted with poverty alleviation cadres being assigned to these projects. The Company also encouraged its staff to participate in poverty alleviation through consumption. The amount of product purchased for the purpose of poverty alleviation amounted to RMB45.37 million, and the assisted sales of poverty alleviation-related products amounted to RMB4.93 million. Meanwhile, the Company introduced 12 partners in relation to poverty alleviation and commenced collaborative poverty alleviation work in various fields. We helped nurture over 1,000 talents for the poverty-stricken regions and recruited an aggregate of 62 staff members from the poverty alleviation regions. The voluntary supporting education activity of "Air China Class" had been carried out with over 200 volunteers giving a total of over 1,300 class hours, and the trial program of poverty alleviation through aesthetic education has been implemented. During the Reporting Period, Sonid Right Banner, Xilingol League, Inner Mongolia Autonomous Region, an aid recipient county, has been lifted from the status as a national-level poverty-stricken county, while Zhaoping county, Hezhou City, Guangxi Zhuang Autonomous Region has attained its annual target for poverty alleviation.

• The Company has enhanced its capability in risk compliance management, reinforced the foundation for system management and issued the relevant requirements on comprehensive risk management of the Company. The "Year for Enhancement of Compliance Management" activity was carried out, pursuant to which regular management on statutory self-inspection has been achieved. We have accelerated the development of the compliance management system with increased efforts put in compliance training. The rule of law construction of Air China progressed smoothly with law-based corporate governance and compliant operation becoming the general consensus among all staff members. We also further promoted the development of the internal control and audit system and completed 107 internal audit items. Moreover, the Company has enhanced the level of operation management and its risk prevention capability on a continuous basis with a view to actively preventing, controlling and eliminating major operational risks.

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• Adhering to the development concept of "green operation for sustainable development", the Company is fully committed to winning the Blue Sky Defense War. To this end, the Company has optimized its energy-saving and environmental protection management system by issuing the "Implementation Rules for Energy Saving, Environmental Protection, Education and Training (

《節能環保及教育培訓實施細則》). It has also propelled the "fuel to electricity" project for

vehicles within the airports by introducing 97 electric commuter buses, increasing the number of electric vehicles owned by the Company to over 200. Moreover, the Company has commenced the upgrade and transformation of its carbon emission system, through which it has strengthened the monitoring and analysis of carbon emission-related data. Besides, the Company actively participated in promotional activities for environmental protection and charitable purposes. On

5 June, the World Environment Day, we organized a flight event under the theme of "Joining Hands to Build a Green Environment (共建綠水青山)". The Company won the 10th China Environmental Award, as the first aviation company awarded with such honour.

Innovation and Digitalization

• The Company has continuously uplifted its information technology level and accelerated the application of innovative management. We have completed the top-level design for digital transformation with constantly improved self-development capability and increased effort in the development of the information security and protection system. The "Lounge Service Management System" has been launched and put into service at 33 self-operated lounges at 12 airports across the country, while the "Luggage Service Information System" developed by the Ground Service Department of the Company has received the "QIC-V Grade Technological Achievement Award

(QIC-V級技術成果獎)", the top award of the National Quality Innovation Competition (全國質量創新大賽). Furthermore, the "Human Resources Information System Application Project"

and the "Wing of Air China", which is both the corporate mobile application platform and the standard APP for staff members, received the First Prize and Second Prize at the 17th Innovative Achievements in the Management Modernisation of National Transport Enterprises Award respectively. The Company also put great efforts in aligning with the digitalization strategy of the Star Alliance and received the Star Alliance CEO Award in the field of digitalization and passenger experience.

• The Company has stepped up its efforts in the development of innovative management systems and mechanisms. The Company has commenced its innovation laboratory work in full swing by setting up 2 company-level innovation laboratories and 7 laboratories for special fields. The Company published Administration Measures for Innovation Laboratories/Engineering Technology Centers

《( 創新實驗室/工程技術中心管理辦法》) and promoted the development of talent, incentive

and procurement mechanisms to ensure quality and efficient operation of laboratory work. The Company has pushed forward the cooperation mechanism for innovation studio projects and integrated flight safety assurance, improving service quality, facilitating the enhancement of effectiveness and inspiring designated poverty alleviation. In this regard, 10 innovation laboratories and 30 innovation studios have been set up, among which, the "Innovation Laboratory for QAR Data Application" was awarded the title of "Labor Model Innovation Studio for High-skilled

Talents of Chinese Civil Aviation Companies (全國民航勞模高技能人才創新工作室)".

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS

The following discussion and analysis are based on the Group's consolidated financial statements and the notes thereto prepared in accordance with the IFRSs and are designed to assist the readers in further understanding the information provided in this announcement so as to better understanding the financial conditions and results of operations of the Group as a whole.

Revenue

During the Reporting Period, the Group's revenue was RMB136,181 million, representing a decrease of RMB593 million or 0.43% as compared with last year. Among which, air traffic revenue was RMB130,257 million, representing a decrease of RMB1,579 million or 1.20% as compared with last year; other operating revenue was RMB5,924 million, representing a year-on-year increase of RMB986 million or 19.97%.

Revenue Contributed by Geographical Segments

Air Passenger Revenue

During the Reporting Period, the Group recorded an air passenger revenue of RMB124,525 million, representing an increase of RMB4,095 million over the previous year. Among the air passenger revenue, the increase of capacity contributed an increase of RMB6,245 million to the revenue, and the increase of passenger load factor led to an increase of RMB662 million to the revenue, while the decrease of passenger yield resulted in a decrease in revenue of RMB2,812 million. The Group's capacity, passenger load factor and yield per RPK in 2019 are as follows:

Air Passenger Revenue Contributed by Geographical Segments