Air China Regulatory News (AIRC)

中國國際航空股份有限公司 (short name: 中國國航) (English name: Air China Limited, short name: Air China) is the only national flag carrier of China.

As the old saying goes, "Phoenix, a bird symbolizing benevolence" and "The whole world will be at peace once a phoenix reveals itself". The corporate logo of Air China is composed of an artistic phoenix figure, the Chinese characters of "中國國際航空公司" in calligraphy written by Deng Xiaoping, by whom the China's reform and opening-up blueprint was designed, and the characters of "AIR CHINA" in English. Signifying good auspices in the ancient Chinese legends, phoenix is the king of all birds. It "flies from the eastern Happy Land and travels over mountains and seas and bestows luck and happiness upon all parts of the world". Air China advocates the core spirit of phoenix which is to "serve the world, to lead and move forward to higher goals". By virtue of the immense historical heritage, Air China strives to create perfect travel experience and keep passengers 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.

Air China was listed on The Stock Exchange of Hong Kong Limited (stock code: 00753) and in London (stock code: AIRC) on 15 December 2004, and was listed on the Shanghai Stock Exchange (stock code: 601111) on 18 August 2006.

Headquartered in Beijing, Air China has set up branches in Southwest China, Zhejiang, Chongqing, Tianjin, Shanghai, Hubei, Guizhou, Tibet and Wenzhou, and a base in Southern China. As at the end of the Reporting Period, the major subsidiaries of Air China are Shenzhen Airlines Company Limited (including Kunming Airlines Company Limited), Air Macau Company Limited, Beijing Airlines Company Limited, Dalian Airlines Company Limited, Air China Inner Mongolia Co., Ltd., Aircraft Maintenance and Engineering Corporation, Air China Import and Export Co., Ltd., Chengdu Falcon Aircraft Engineering Service Co., Ltd., Air China Shantou Industrial Development Company; and its joint ventures mainly include GA Innovation China Co., Ltd. and Sichuan Services Aero-Engine Maintenance Co., Ltd. Moreover, the associates of Air China are Cathay Pacific Airways Limited, Shandong Airlines Co., Ltd. and Tibet Airlines Co., Ltd.. Air China is also the largest shareholder of Shandong Aviation Group Co., Ltd.

With the goal of becoming "the world's leading airline", Air China is actively implementing the strategic objectives of "globally leading competitive advantages, constantly enhanced development capability, excellent and unique customer experience, and steadily improved interests and benefits". Air China is dedicated to serving passengers with credibility, convenience, comfort and choice. "Air China Miles" is the oldest frequent flier programme in China, under which all members of the frequent flier programmes under various brands of its subsidiaries and associates have been consolidated into the brand of "Phoenix Miles". As at the end of the Reporting Period, the total number of "Phoenix Miles" members amounted to 68.1766 million.

As at the end of the Reporting Period, the Group had a total of 707 aircraft of various types, with an average age of 7.74 years. The Group operated a total of 674 passenger routes, including 48 international routes, 6 regional routes and 620 domestic routes. Through cooperation with members of Star Alliance, the Company has further expanded its service coverage to 1,300 destinations in 195 countries and regions.

Contents

Corporate Information

REGISTERED CHINESE NAME:

中國國際航空股份有限公司

ENGLISH NAME:

Air China Limited

REGISTERED OFFICE:

Blue Sky Mansion

28 Tianzhu Road

Airport Industrial Zone

Shunyi District

Beijing

China

PRINCIPAL PLACE OF BUSINESS IN HONG KONG:

5th Floor

CNAC House

12 Tung Fai Road

Hong Kong International Airport

Hong Kong

WEBSITE:

www.airchina.com.cn

DIRECTORS:1

Song Zhiyong

Feng Gang

Patrick Healy

Xue Yasong

Duan Hongyi

Stanley Hui Hon-chung

Li Dajin

SUPERVISORS:2

Zhao Xiaohang

He Chaofan

Lyu Yanfang

Wang Jie

Qin Hao

LEGAL REPRESENTATIVE OF THE COMPANY:

Song Zhiyong

COMPANY SECRETARY:

Zhou Feng

AUTHORISED REPRESENTATIVES:

Song Zhiyong

Zhou Feng

LEGAL ADVISERS TO THE COMPANY:

DeHeng Law Offices (as to PRC Law)

DLA Piper Hong Kong (as to Hong Kong and English Law)

INTERNATIONAL AUDITOR:

Deloitte Touche Tohmatsu

Registered Public Interest Entity Auditors

H SHARE REGISTRAR AND TRANSFER OFFICE:

Computershare Hong Kong Investor Services Limited

Rooms 1712-1716, 17th Floor, Hopewell Centre

183 Queen's Road East

Wanchai

Hong Kong

LISTING VENUES:

Hong Kong, London and Shanghai

2 For details of changes in Supervisors of the Company during the Reporting Period and up to the date of this annual report, please refer to page 56 of this annual report.

Chairman's Statement

2020 REVIEW

The year of 2020 is the final year for the 13th Five-year Plan, it is also the critical year for completing the building of a moderately prosperous society in all respects and achieving the first centenary goal. Under the strong leadership of the Central Committee of the Party with General Secretary Xi Jinping at the core, the Group resolutely carried out the decisions and deployment plans of the Central Committee of the Party and the State Council. The Group served the nation's needs for containing the pandemic and resumption of work and production as well as poverty alleviation. The Group has undertaken overall planning for various major tasks including pandemic prevention, safe production, performance maximization, targeted poverty alleviation, environmental protection, risk prevention and control and passenger services, thereby minimizing the impact of the pandemic and laying a solid foundation for the new stage of development of the Group.

Bravely carrying out the risky and challenging mission of fighting the pandemic. Facing the sudden outbreak of the COVID-19 pandemic, the Group immediately activated the emergency mechanism and fulfilled the joint responsibilities of prevention and control. The Group strictly implemented the pandemic prevention and control policies, made every effort to sustain flights for key international routes, made every effort to transport medical teams, personnel and materials and facilitated the resumption of work, production and schools. The Group has set up a three-dimensional ground-to-air prevention and control network which allowed international direct flights being resumed from Beijing. We ensured employees' health and safety by pursuing the joint virus prevention in respect of ground and aviation as well as individuals and properties. Since the outbreak of the pandemic, 216 anti-epidemic transport service charter flights have been operated, transporting 31,000 passengers, and 154 customized flights carrying 18,000 passengers for the resumption of work, production and schools. A number of teams and individuals of the Group have been awarded anti-pandemic honorary titles at the national level, and been publicly honored outstanding anti-epidemic titles by the SASAC or within the transportation industry.

Laying a safety foundation for high quality development. By giving top priority to safety as the lifeline of the Company, the Group strengthened the organizational leadership, specified the safety-oriented responsibilities and strictly implemented the responsibilities in safety supervision. The Group paid close attention to prevent and control safety and risk, strengthened the management and control of safety procedures and ensured normal operation of flights. The Group enhanced the safety infrastructures, organized and launched a specific program of "revamping corporate culture, strengthening three basics, and safeguarding the bottom line of safety", so that its requirements for the development of business practices become a part of the institution to maintain the stable position of the Group. In 2020, amidst the complicated production and operation conditions, the Group achieved a total of 1.553 million safe flight hours ensuring the safety of all kinds of major transportation missions.

Putting every effort in maximizing operating performance. The pandemic has brought unprecedented challenges to the aviation transportation industry. Facing the severe environment, the Group has strengthened market research and production organization, and focused on improving the service quality and cost-effectiveness and had taken various measures to promote operation, strengthen the performance and prevent risks. Through timely application of performance emergency response mechanism, the Group has increased revenue and cost-effectiveness in full swing so as to reverse the downward trend. The Group seized market opportunities and coordinated the allocation of production resources by taking abreast of the market changes precisely. The Group took the lead in implementing the operation model of "passenger aircraft converted for cargo operations" by grasping the trend of cargo freight supply and demand and flexibly making adjustments between passenger flights and cargo flights, resulted in 13,120 aircargo flights operated by using the passenger aircraft. In addition, the Group implemented stringent cost control to ensure a safe and steady fund flow.

Comprehensively implementing the requirements of the three critical battles. The Group focused on precision and promoted enhancement, persisted in promoting and optimizing the "8+2" targeted poverty alleviation model and dedicated to assisting the targeted poverty alleviation regions to timely accomplish the task of poverty alleviation with high quality, thereby ensuring feasible and sustainable poverty alleviation. We would continue to implement the Three-Year Action Plan for "battling against air pollution" project, accelerate the establishment of a carbon emission system and an energy conservation and environmental protection management platform and to promote the "fuel to electricity" project. By perfecting risk prevention and control, internal control, compliance and law into the "four-in-one" management mechanism, the Group would advance the development of internal audit system for preventing operational and management risks and effectively promoting the modernization of its corporate governance system and capabilities.

Steadily enhancing the service quality. The Group adhered to customer orientation, grasped the changes in passengers' demands and adjusted the service procedures so as to continuously enhance passengers' sense of security and achievement. We considered the health of our passengers as the top priority that we strictly implemented the epidemic prevention and control requirements in the whole service process and ensured our passengers' safety. We have developed a sound product management and service system and a full-process product management system by product categorization and classification. On one hand, we accelerated the establishment of the global ground support platform to improve our ability in fast response and flexible decision making under irregular operation. On the other hand, we sped up the formulation of hub-based strategic products and the development of new transit centers, promoted the creation of innovative products for convenient travel and actively promoted the domestic facial recognition-based self-boarding travel services in Beijing, thereby expanding the self-service and intelligent application. In addition, we prepared for the provision of services to the Winter Olympic Games and the Winter Paralympic Games in an orderly manner and fulfilled the mission of various safeguarding services successfully, which demonstrated the image of the Company as the partner of both the Summer Olympic Games and the Winter Olympic Games.

The period covered by the 14th Five-Year Plan is the period in which embarks a new journey to build China into a modern socialist country in all respects. Meanwhile, it is also a critical era for the Group to deepen its reform and establish itself as a top-tier global aviation and transportation group at the new stage of national development. The year of 2021 is the inception year of the 14th Five-year Plan, the Group is committed to follow the underlying principle of pursuing progress while ensuring stability. The Group will continue to enhance development quality, consolidate the success in containing the pandemic, strengthen the operational safety and development. Taking a large stride towards the development into a global leading enterprise, the Group will embrace the 100th Anniversary of the Chinese Communist Party with its outstanding performance, making new and greater contributions to China on her new journey of building a modern socialist country in all respects!

Chairman

Beijing, China

30 March 2021

Chronicle of Events

Jan

On 25 January, Air China undertook the charter flight mission of the National Health Commission for the first Sichuan medical team to fly from Chengdu to Wuhan; on 26 January, Air China undertook another charter flight mission of the National Health Commission and operated two charter flights for the first Beijing medical team and one charter flight for the first Tianjin medical team, which flew from Beijing and Tianjin to Wuhan, respectively.

Feb

On 4 February, the "Nature's Touch" cabin concept design of ACJ320neo Business Jet, which was jointly developed by Aircraft Maintenance and Engineering Corporation (AMECO) and Lufthansa Technik, won the 2020 iF Design Award from iF International Forum Design GmbH.

On 7 February, Air China actively responded to the nation's call to maintain a stable supply chain and used its passenger aircraft as freighters. It adopted the innovative model of "passenger aircraft converted for cargo operations" to ensure smooth operation of the worldwide supply chain, which played a positive role in the normal operation of the global manufacturing sector given the Covid-19 impact.

Mar

On 1 March, Air China celebrated the 55th anniversary of safe flight along the Chengdu-Lhasa route, which was once regarded as an "unflyable zone" by the global aviation industry for its widely recognized difficulty. In total, Air China has completed 101,700 safe flights, carried 13.17 million domestic and international passengers and transported 288,000 tonnes of cargoes and mails.

Apr

After 76 days of lockdown, Wuhan officially lifted its travel restrictions. On 8 April, Wuhan Tianhe International Airport recorded 38 inbound and outbound flights of the Group, connecting Wuhan with other places again. As the so-called, "Air China, distant shadow, vanish in the blue sky; on a whirlwind it mounts thousand miles, Air China took off again (國航遠影碧空盡，扶搖萬里重啟航)".

May

On 11 May, Zhaoping County, Hezhou City in Guangxi Zhuang Autonomous Region, which was the paired poverty-stricken county of CNAHC Group, had been officially lifted from the status as a national-level poverty-stricken county. Since then, all aid recipients of CNAHC Group had been lifted from the status as a national-level poverty-stricken county as scheduled. The "8+2" and "aviation+targeted poverty alleviation" plan of the Company was elected as "Top 50 Comprehensive Cases of Targeted Poverty Alleviation by Enterprises (企業精準扶貧綜合案例50佳)" by the former State Council Leading Group Office of Poverty Alleviation and Development.

On 26 May, the Company held the 2019 annual general meeting at which Mr. Feng Gang was elected as a non-executive Director and Mr. Duan Hongyi was elected as an independent non-executive Director. Since then, the new full-time deputy Party secretary and external professional Director have joined the Board.

On 28 May, Air China received the Best Airline with Breakthrough in Remote Check-in Award from the International Air Transport Association (IATA). As of the end of 2020, Air China provided electronic boarding pass service and "paperless" customs clearance at 117 terminals, which greatly enhanced convenience for passengers.

Jun

On 30 June, Beijing Airlines completed the first report in the domestic civil aviation industry in relation to carbon emission monitoring scheme, carbon emission reporting and third-party audit (2019) as the only domestic airline with an established carbon emission data monitoring system for public and business aviation flights.

Jul

On 10 July, the first ARJ21-700 aircraft completed its first voyage on the CA1109 Beijing-Xilinhot route. As an adaptive, comfortable and economical model, ARJ21-700 aircraft will supplement the carrying capacity of the regional aircraft of the Group and facilitate the effective connection between domestic and regional routes of the Group, thereby further optimizing the overall layout of the Group's route network.

On 16 July, Air China ranked 9th and outperformed other Chinese aviation enterprises in the "2020 Top 50 Chinese Global Brands (2020年中國品牌出海50強) " that were jointly selected by WPP and Google.

On 22 July, Shenzhen Airlines won the "2019 Best Airline Award (2019年度最佳航空公司獎)" and the "CAPSE 2019 In-flight Entertainment Service Enhancement Excellent Award (CAPSE2019機上娛樂服務提升卓越獎)" in the 6th CAPSE (a civil aviation passenger service evaluation). The refined and innovative "Carefree Travel (一程無憂)" check-in service that covers the entire process won the "CAPSE 2019 Excellent and Innovative Service Award (CAPSE2019優秀創新服務獎)".

Aug

On 5 August, the World Brand Lab held the 17th "World Brand Conference" in Beijing and released the "Top 500 Most Valuable Chinese Brands 2020 (2020年中國500最具價值品牌)". Air China ranked 21st with a brand value of RMB186.519 billion, which is the highest ranking among civil aviation companies in China.

Sep

On 5 September, the 500-day countdown to the Winter Olympics, the first Winter Olympics-themed painted aircraft "Winter Olympics Ice and Snow" successfully completed its first voyage from Beijing to Chengdu on CA1415. On 22 September, this first Winter Olympics-themed painted aircraft "Winter Olympics Ice and Snow" flew to Wuhan for the first time. Representatives of the Beijing medical team and advanced individuals from Air China who participated in the pandemic fight and relief in Hubei Province were invited as honoured guests to participate in the specially designed events on the plane.

On 8 September, the National Covid-19 Fight Award Ceremony was held at the Great Hall of the People in Beijing. The General Fleet of the Company was named as "National Advanced Unit in Pandemic Prevention" and Ms. Liu Tingting, the chief flight attendant of the Cabin Service Department, was awarded the title of "National Advanced Individual in Pandemic Prevention".

Oct

On 15 October, WPP and Kantar jointly released the "2020 BrandZTM Top 100 Most Valuable Chinese Brands" and Air China ranked 43rd on the list, which is the highest among aviation companies in China.

On 22 October, the Hubei Branch of the Company was awarded "Advanced Unit of Central Enterprise in Pandemic Prevention" by the Communist Party Committee of the SASAC, so as to recognise its advanced and admirable spirit in fighting the pandemic and to encourage concerted efforts and motivational positive energy.

Nov

On 7 November, the 2nd New Fortune Best Listed Company Award Ceremony was held in Xiamen. Air China was elected as the "New Fortune Best Listed Company (新財富最佳上市公司) ", which proved that its achievements in standardised operation, information disclosure and market capitalisation management were highly recognised in the capital market.

On 16 November, Air China won the title of "Golden Airline (金選航空公司) " at the "15th China Travel Golden List (中國旅遊金榜) " Award Ceremony organised by the Travel (時尚旅遊) magazine.

On 22 November, the "Air China's Blue Sky Class" volunteer teaching program was recommended by the Central Enterprise Working Committee of the Communist Youth League of China to participate in the 5th China Youth Volunteer Service Program Contest 2020 cum Volunteer Service Exchange Seminar, where it received the National Bronze Award.

Dec

On 3 December, Air China won two major awards, namely the "Best Listed Company (最佳上市公司)" and the "Best Board Secretary of Listed Companies (最佳上市公司董事會秘書)" at the 10th Hong Kong International Financial Forum cum China Securities "Golden Bauhinia". On the same day, Air China was honored with the title of the "2020 Golden Bee Two-star Evergreen Enterprise Award for Excellent Corporate Social Responsibility Report (金蜜蜂2020優秀企業社會責任報告·長青企業二星級) ".

On 22 December, the World Brand Lab released the "Top 500 Best Global Brands 2020" at the 17th "World Brand Conference". With a brand value of RMB186.519 billion, Air China ranked 282nd among global brands and became the only Chinese civil aviation company on the list among 43 Chinese companies. Meanwhile, Air China received the "China No.1 Brand Award for the Year 2020 (Aviation Services Industry) (2020「中國品牌年度大獎NO.1(航空服務行業)」)" and a special award named "2020 Cultural Brand Award (2020年「文化品牌大獎」)".

On 29 December, the Company held the 24th meeting of the fifth session of the Board at which Mr. Song Zhiyong was elected as the Chairman of the Company. Mr. Song Zhiyong ceased to be the deputy Chairman and President of the Company.

On 31 December, Mr. Song Zhiyong, the Chairman of the Company, welcomed the last flight of the year at Beijing Capital International Airport, wrapping up Air China's achievement of the safe flight year of 2020. The Group achieved a total of 1.553 million safe flight hours, safely travelled 973.01 million kilometers and transported 68.687 million passengers safely throughout the year.

Summary of Financial Information

(RMB'000)

Notes:

(1) EBITDA represents earnings before finance income and finance costs, exchange gains/losses, income tax expense, share of results of associates and joint ventures, depreciation and amortisation as computed under IFRSs.

(2) EBITDAR represents EBITDA before deducting lease expenses on aircraft as well as other lease expenses.

(RMB'000)

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.

Fleet Information

During the year of 2020, the Group introduced a total of 14 aircraft, including two A350, eight A320NEO, one A321NEO and three ARJ21-700 aircraft, among which one was bought with our own funds, 11 were introduced under finance leases and two were introduced under operating leases. On the other hand, the Group phased out six aircraft, including two B737-800, one B737-300, one A320 and two A319 aircraft.

As at the end of 2020, the Group had a total of 707 passenger aircraft including business jets, with an average age of 7.74 years. Among the aircraft set out above, the Company operated a fleet of 431 aircraft in total, with an average age of 7.99 years. The Company introduced 10 aircraft and phased out five aircraft, among which one was sold to Air China Inner Mongolia.

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

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

BUSINESS

OVERVIEW

Linking the World

Business Overview

Containing the pandemic

Facing the sudden outbreak of the COVID-19 pandemic, the Group followed the important instructions of General Secretary Xi Jinping, who proposed that "go where there is epidemic, flight it till it perishes". The Group immediately activated the emergency response mechanism and quickly set up a leading team for pandemic prevention and control to provide support in the fight against the epidemic "regardless of the conditions and at the most advanced level". The Group has built anti-epidemic rescue transport channels to aid the battle against the pandemic. This demonstrated the Group's vision and commitment as the national flag carrier. The Group strived to implement the deployment of "preventing the coronavirus from spreading within the city/region or beyond" by establishing the three-dimensional prevention and control network covering from the ground to the air, so as to overcome difficulties and pave way for the resumption of international direct flights from Beijing. The Group consistently implemented regularized pandemic prevention and control measures to ensure the health and safety of passengers and employees.

In the year-long fight against the COVID-19 pandemic, all employees of the Group firmly adhered to the idea that "the epidemic calls us to action" and practiced the fighting spirit of "the airports as the battlefields, the flight routes as the frontline and the cabins as the 'mobile-cabin hospitals", so that our staff remained courageous regardless of any dangers or risks. In the time of crisis, the flight attendant team stayed calm and stood up bravely. With a willingness to take responsibility and sacrifice, they travelled between pandemic-stricken "battlefields" and undertook urgent and high-risk tasks fearlessly. Our employees were put under a total of 98,243 quarantine, of which 68,000 quarantine were for pilots. On average, each employee underwent quarantines 2.6 times and the average quarantine time was more than 36 days per capita. In particular, the quarantine period for pilots of wide-body aircraft of the General Fleet exceeded 100 days per capita. Concurrently, the ground service team and the staff at the aviation security centre were heedless of their own safety and headed for the frontline against the virus, which they had orderly organized diversion of international inbound flights, strenuously discharged transit passengers and accomplished various mission to safeguard the transportation of rescue charter flights, personnel and supplies. While employees at the call centre worked around the clock to handle approximately 10 million ticket exchange and refund requests from passengers, overseas staff were eager to help the country by promptly procuring pandemic control materials and preventing interruption to the important international routes. At the Hubei branch, the Group's employees were determined to stay behind to fulfil their responsibility for local pandemic prevention and securing the transportation for relief operations. Approximately 100,000 frontline and backline employees have made enormous efforts in fighting the epidemic. Together, we have forged the backbone for overcoming difficulties. Since the outbreak of the COVID-19 pandemic, 216 anti-epidemic transport service charter flights have been operated transporting 31,000 passengers. Approximately 32,000 passengers had been put on waitlist for international flights and 631 international inbound flights had been diverted and organized. The General Fleet of the Company was named as National Advanced Unit in Pandemic Prevention and Ms. Liu Tingting of the Cabin Service Department was awarded the title of National Advanced Individual in Pandemic Prevention. In addition, seven teams and 17 individuals were publicly recognized and awarded by the SASAC and within the transportation industry.

The Group always puts the passengers first. With a focus on passengers' needs and experience, the Company provides the passengers with excellent services in a "fast", "customized" and "flexible" manner. At the beginning of the COVID-19 outbreak, the Group took the lead to offer e-health declaration forms to passengers. In addition to taking strict sterilization measures for aircraft interior, the Group ensures passengers are sanitized before boarding. Moreover, the Group arranged measuring of passengers' body temperature at the boarding gates to ensure steady flight operation and passenger safety. The Group sent messages to notify passengers of the refund and exchange policy and update them on flight resumption. 258,000 prompt text messages were sent throughout the year, which effectively improved communication and ensured service continuity during the special period. At the same time, the Group advanced the application of mobile technology by completing 112 iterative development for the e-commerce platform and website as it optimized and offered 1,970 new functions addressing the pandemic scenario. The Group was the first domestic airline to allow passengers of international flights to change their waitlist and reservation status through its APP. In order to upgrade passenger experience, the Group streamlined the self-service ticket change process, launched the self-service function for the change of names on tickets, rolled out the self-service reservation function for special requirements such as wheelchair service/checked-in baggage/carried on baggage, brought in voice identification and control functions for visually impaired passengers and developed a more user-friendly and convenient interface. Based on passengers' preference, the Company actively adjusted the in-flight entertainment content and mix. In an effort to innovate flight operating models for an unusual period, the Group launched new food presentation ideas with the "Henishuo" (盒你說) food box.

Safe operation

The Group is well aware that safety responsibility is a kind of political responsibility and the guarantee for safe flight underlies the foundation of the Group's original aspiration and mission. The Group has firmly established the concept of safety development and stayed committed to safety and risk control. Based on the operational characteristics in times of pandemic prevention, the Group took the approach of "one flight, one policy, one route, one strategy" to prevent and control safety and risks and formulate risk control measures for "passenger aircraft converted for cargo operations". The Company strengthened the safety management and control over the operation process, launched a special inspection for in-flight shutdown prevention and engine management system and implemented measures for proper dangerous goods transportation and warehousing. The Group ensured the safe operation of new aircraft and adopted specific risk control measures for introducing and operating the ARJ21 aircraft. As a result, three ARJ21 have joined the fleet and recorded 1,198 safe flight hours. Meanwhile, the Group enhanced the basis of safety management by launching a special program of "revamping corporate culture, strengthening three basics, and safeguarding the bottom line of safety". The Group revised the SMS manual and operating procedures/standards, so that its requirements for the development of business practices become a part of the institution. The Company properly arranged the training plans and adjusted pace of trainings dynamically to ensure the proficiency of key technicians. Furthermore, the Group established cooperation with aviation schools for setting up exclusive training base to increase support for aviation training. The Group also held pilot skill competition to boost the competency of the workforce.

During the Reporting Period, the Group maintained sound and safe development in the complex operating environment. It recorded 1.553 million safe flight hours and 973.01 million safe flight kilometres when transporting 68.687 million passengers safely, successfully safeguarded the provision of important transportation services for various events, such as the China International Import Expo and the China (Beijing) International Fair for Trade in Services.

Maximising operating performance

During the Reporting Period, the Group strengthened the market research and production organization in view of the challenging conditions. Aiming for higher quality and efficiency, the Group took a multipronged approach to promote operation, strengthen performance and prevent risks. Aside from activating the performance emergency response mechanism, the Group adopted a series of extraordinary measures in the aspects of production organization, marketing and cost management, so as to reverse the downward trend by driving up revenue and cost-effectiveness. In parallel to that, the Group seized market opportunities and kept abreast of policy changes. For instance, the Group customized 154 flights and transported 18,000 passengers for business, production and schools resumption. The Group precisely tapped the cargo freight supply and demand and enhanced the collaboration between passenger flights and cargo flights. To maintain capacity input and utilize wide-body aircraft effectively, the Group pioneered the "passenger aircraft converted for cargo operations" business model which resulted in profit margin and sharing of fixed costs of passenger aircraft. At the same time, the Group closely monitored the recovery of the domestic market and customized production organization to maximize profit margins. It rapidly resumed the scale of production input, adjusted the allocation and structure of transport capacity dynamically and developed detailed marketing and product investment plans. In terms of value-added services, new product models and precise marketing, the Group continued its innovation efforts and rolled out the "Your Journey, Your Pick" (你的旅程，自由定義) travel product series. Through the online direct sales platform, the Group launched the extensive product and service offering for a wide range of customers, which comprised the "Two-city Card" (雙城次卡), "Curiosity Calendar" (好奇心日曆) and "Youth Right Card" (青春權益卡). Based on the travel pattern of targeted passengers, the Group enriched its value-added product mix by providing electronic upgrade coupons, two-for-one ticket deals and other products developed from unsold seats to cater to passengers' needs at different stages throughout the journey, thereby offsetting the loss of revenue from premium cabins services. The Group moved ahead with the

transition towards the customer-oriented business model, with the view of supporting the transformation of Air China from a flight provider to an integrated service provider. It expanded the application of mileage credits monetization on an ongoing basis and accelerated its value development. While establishing a more comprehensive product system, it drove the growth of businesses that generated additional revenue. The Group exercised stringent cost control and aligned operation with costs in a scientific manner. It relocated the cost structures and systems swiftly and allowed internal financing to ensure safe and sound capital flow.

Targeted poverty alleviation

The Group implemented the important instructions of General Secretary Xi Jinping on surmounting the challenge of poverty alleviation. The Company shouldered its political and social responsibility as a national flag carrier and is dedicated to ending poverty in designated areas. Based on the "8+2" targeted poverty alleviation plan of CNAHC, the Group carried out various supporting projects such as infrastructure construction as well as poverty alleviation through industry, education, health and ecological protection. During the Reporting Period, the Company provided and introduced the same level of relief funds and supporting funds to the targeted poverty alleviation regions. The Company offered trainings to 4,890 grass-roots cadres and technicians, procured the purchase of RMB56.28 million worth of farming and livestock products from poor regions and assisted the sales of such products for RMB10.73 million. During the Reporting Period, the aid recipients, namely Sonid Right Banner of Xilingol League in Inner Mongolia Autonomous Region and Zhaoping County of Hezhou City in Guangxi Zhuang Autonomous Region, had been lifted from the status as a national-level poverty-stricken county.

Environmental protection

Adhering to the concept of "green operation for sustainable development", the Company is fully committed to battling against air pollution. To this end, the Company has optimized its energy-saving and environmental protection management system by formulating and issuing the "Implementation Rules for the Management of Energy Saving and Environmental Protection Fund" (《節能環保專項資金管理實施細則》) and the "Implementation Rules of Energy Saving and Environmental Protection Inspection" (《節能環保督查實施細則》). As the Company established and launched the energy-saving and environmental protection management platform, the Company had achieved informatized and automated energy data management for collective data processing and procedure enhancement. In pursuit of a green and low-carbon operation, the Company adopted various fuel-saving measures to lower the use of jet fuel, including fair control over aircraft weight, monitor aircraft performance, implement better route planning and refine fuel consumption management and computation. The Group advanced the replacement of aircraft APU with ground equipment and facilities, which effectively reduced aircraft ground emissions. In addition, the Company accelerated the "fuel to electricity" project. By the end of the Reporting Period, the Company owned 653 new energy vehicles, built 195 charging piles and completed flue gas renovation for 1,431 on-site fossil fuel vehicles. Besides, the Company improved its capacity of scientific management and control of carbon emission and compiled the "Implementation Rules of Carbon Emission Management" (《碳排放管理實施細則》) for further improvement of the carbon emission management system. The Company optimized and upgraded the carbon emission monitoring and analysis system, and launched the carbon emission calculator for passengers. In December 2020, Air China Passenger Carbon Emission Calculator was launched on Air China APP, its official website and WeChat mini-program simultaneously. In 2020, the Company and its Southwest branch were honoured as the Advanced Civil Aviation Unit in battling against air pollution.

Risk prevention and control

The Group continued to comprehensively reinforce the risk management and highlight the forward-looking risk research and assessment for expediting the optimization of the compliance-focused internal control system of the Company. The Company also strengthened the study, judgment and disposal of material risks during the year and performed risk evaluation of major decisions to the greatest extent. The Group carried out risk monitoring and closed-loop management on an ongoing basis and implemented stringent risk mitigation plans. During the year, the Group prioritized overseas compliance facilities for its annual system construction with a view to continuously enhancing the compliance management system. Meanwhile, the Group cultivated compliance culture by organizing compliance promotion month events and holding 31 training sessions on risk control. The Group worked conscientiously to fulfil its responsibility in internal audit and supervision, set up an internal audit and organization structure and optimized the internal audit system. The Group had completed 31 internal audit projects during the year. By strengthening the research in key compliance areas, the Group ensured proper forecasting for compliance risks. In order to keep decision-making process in line with laws, the Group maintained operation compliance and had different systems in place to uphold the rules. The Group aimed to achieve more effective management process and ensure the smooth operation of the risk management mechanism. The compliance and risk prevention capabilities of the Company kept growing, which provided strong support to its steady operation and risk mitigation.

CORE COMPETENCE ANALYSIS

Strong brand advantage

Air China positioned its brand as "professional and reliable with both international quality and Chinese temperament". By virtue of the immense historical heritage, Air China strives 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", while pursuing outstanding performance through innovative and excelling efforts. By maintaining its world-class flight safety record and leading comprehensive strengths in Mainland China, the Group has extensive brand recognition and excellent brand reputation among consumers. As the only national flag carrier in the civil aviation industry in China, the Company has been providing special flights and charter flights services to state leaders, diplomatic envoys, cultural and sports representatives of China for a long time, which is the best embodiment of the unique honorable status and comprehensive strengths of the Company.

During 2020, Air China focused on brand communication activities including the prevention and control of the pandemic, safeguarding the Winter Olympic Games and introducing domestically manufactured aircraft. The Company also launched hardcore works such as "pilot's warm broadcast" and "flights to spring". Air China organized the "Flying the national flag to the blue sky by operating the domestically manufactured ARJ aircraft" event and hosted a series of campaigns, including the "500 days of New Voyage for the Winter Olympics" campaign for the first voyage of the color-painted "Winter Olympic Ice and Snow" themed aircraft, so as to demonstrate the good brand image of the aviation company representing "both the Summer Olympic Games and the Winter Olympic Games" and building the active brand image of a responsible central enterprise, which marked the achievement we have made along with our development and the aspiration of expanding the brand influence and the brand value constantly.

In 2020, Air China ranked 21st in the list of "Top 500 Most Valuable Chinese Brands 2020 (2020年中國500最具價值品牌)" released by World Brand Lab with a brand value of RMB186.519 billion, which is the highest ranking among civil aviation companies in China. Air China also ranked 282nd among global brands in the "The World's 500 Most Influential Brands 2020 (2020年世界品牌500 強排行榜)" released by World Brand Lab, and was the only Chinese civil aviation company on the list among 43 Chinese enterprises. Meanwhile, Air China received the "China No.1 Brand Award for Year 2020 (Aviation Services Industry) (2020年中國品牌年度大獎NO.1(航空服務行業))" and a special award named "2020 Cultural Brand Award (2020年文化品牌大獎)". In addition, Air China was elected "BrandZ™ Top 100 Most Valuable Chinese Brands 2020" (2020年BrandZ™最具價值中國品牌100強排行榜)", "Chinese Top 50 Global Brand Builders 2020 (2020年中國品牌出海50強)", and received an award named the "Best Listed Companies 2020 (2020年最佳上市公司)".

Market leader of the Beijing hub

The Company's principal base is located at Beijing Capital International Airport, also known as "the first gateway to China". Situated at the intersection of Europe, the Americas and Asia, Beijing has a unique and prime location advantage for establishing itself into a large international aviation hub in the Northeast Asia. Beijing is also a place with the best local government support, corporate customer and traveller bases. The advantages of Beijing in terms of both geographical location and customer structure are favourable to the Company for maintaining a higher yield level.

In 2020, under the huge impact of the COVID-19 pandemic, the Group has rapidly recovered its transport capacity in Beijing while taking into account the benefits of route operation and striving to sustain flights in important international aviation markets. Upon the implementation of the "Five-One" policy for international flights by the Civil Aviation Administration, the Company was allowed to operate 40 international flights per week, which ranked first among airlines in China. In January 2021, the Company started to operate domestic flights in both Terminal 2 and Terminal 3 of Beijing Capital International Airport. With the commencement of the operation model of "one airport and two terminals", the Company will continue to enhance its operation efficiency and optimize the travel experience of passengers with a view to accelerating the development into a world-class hub. Such efforts included proactively promoted the intelligent domestic travel services of facial-recognition-based self-boarding at our principal base in Beijing and realized facial recognition at the near-flight boarding gates in Terminal 3, promoted transit services between airlines in Beijing and provided check-in services for certain outbound routes from Beijing with transit to Shenzhen Airlines and Shandong Airlines, introduced passenger luggage whole process tracking and enquiry services for 10 routes including Beijing-Chengdu and Beijing-Wuhan and enhanced the hubs' luggage handling efficiency and completed the expansion of lounge on the second floor of T3C in Beijing.

Upon the commencement of operation of Beijing Daxing International Airport in 2019, the operation pattern of "one city, two airports" in Beijing was formed. As the principal base airline that currently operates in both airports and generates the largest business volume, the Company will fully grasp the historic opportunities arising from the development of the Beijing Hub to continuously focus its resources and efforts on accelerating the optimization of hub functions, enhancing the operation efficiency and quality assurance of services, constantly improving its route network, so as to establish Beijing Capital International Airport into a world-class aviation hub, and at the same time facilitating Beijing Daxing International Airport to become a "new source of momentum for national development".

Balanced and complementary route network

Adhering to the long-established principle for the market layout of "balanced development between domestic and overseas routes and support international routes with domestic routes", the Company comprehensively reinforced the global network and made consistent efforts in building a world-class hub in Beijing and an international hub in Chengdu. During the course of the Company's operation over the years, the Company implemented national development strategies and hence formed an extensive and balanced domestic and international route network, covering the most economically-developed and densely-populated regions in China. After years of development, the Company has taken the lead in respect of mainstream international routes from domestic cities to Europe and North America.

Against the backdrop of anti-pandemic work worldwide, the Company made full use of time slot resources and 35% of international flight slots were transferred for the use of domestic flights at the beginning of the summer flight season in 2020. According to the conditions of the pandemic and market recovery progress, the Company reasonably allocated the transport capacity of each base and deployed wide-body aircraft in Beijing to execute flight plans in markets such as Shanghai, Chengdu, Guangzhou and Chongqing. The Company also provided connected international flights to sustain flights in major international aviation markets.

During the Reporting Period, the Company's Beijing world-class hub newly launched domestic routes such as Beijing-Hengyang, Beijing Daxing-Bazhong and Beijing-Yan'an; the Chengdu international hub newly launched routes such as Chengdu-Shijiazhuang and Chengdu-Bazhong; and the Shanghai international portal newly launched international and domestic routes such as Shanghai Pudong-Singapore, Shanghai Pudong-Zhuhai and Shanghai Pudong-Xining. The Company newly launched international and domestic routes such as Hangzhou-Singapore, Chongqing- Zhanjiang, Chongqing-Shantou, Chongqing-Hefei, Nanchang- Shijiazhuang, Hangzhou-Shantou, Tianjin-Ningbo, Hangzhou-Zhengzhou and Nanchang-Xi'an.

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 674 passenger routes, including 48 international routes, 6 regional routes and 620 domestic routes. In 2020, the Company's passenger routes reached 28 countries and regions and 147 cities, including 26 international cities, three regions and 118 domestic cities. Through cooperation with members of Star Alliance, the Company has further expanded its service coverage to 1,300 destinations in 195 countries and regions.

High quality customer base

In line with the Company's strategy for hub network, the Company targeted the mainstream market of mid-to-high-end government and corporate passengers, which is currently the most valuable passenger group in China. As at the end of the Reporting Period, the number of "Phoenix Miles" members has exceeded 68.1766 million. Air China was the first domestic airline to offer special membership protection during the pandemic, providing frequent flyer members who were subject to relegation or downgrade with automatic membership renewal for a period of 12 months. Extension for mileages of VIP members has also been introduced. Revenue contributed by frequent fliers accounted for 52.3% of the Company's air passenger revenue, representing a year-on-year increase of 6 percentage points to revenue. The number of registered users of Air China APP has exceeded 12.34 million, which maintained stable yet rapid growth. In 2020, the Company newly acquired 296 major customers, which brought the total number of effective major customers to 3,620 and the aggregate number of existing and newly acquired customers under global agreements to 122. The Company actively facilitated the resumption of work and production by providing full-chain quality services for customized flights in relation to the resumption of work and production of the government, enterprises and schools. A total of over 100 customized flights and chartered flights have been operated, which received wide recognition from the customers.

Leading cost control advantages

In 2020, facing the impact of the pandemic, the Group insisted to pursue the approach of "optimized operation for the entire fleet" and the concept of "improving efficiency, optimizing structure and focusing on major items", under which the Group put emphasis on improving the efficiency in resource utilization, optimizing resource allocation and enhancing cost-effectiveness. Through coordination among various departments and with the synergy effect from various segments, the Group adopted a refined all-process management on the variable costs. By further promoting the awareness of "preparing for going through hard times", the Group enhanced refined management, limit management and benchmark management on rigid costs and controllable expenses. On the basis of ensuring secured liquidity for centralized allocation, the Group gradually reduced the amount of funds on hand, increased the capital utilization efficiency and reduced finance costs.

Continuous management innovation mechanism

With a great emphasis on innovative management, the Company has established a set of relatively all-round and well-developed innovation mechanism through practices, thereby formulating a comprehensive technological innovation system. The system mainly consists of the corporate culture encouraging innovation, and the talent management regime motivating and supporting innovation. During 2020, the Company continued to enhance the innovative management system, formulated and issued the Implementation Rules on Managing Special Funds for Scientific Research and Innovation (《科研創新專項經費管理實施細則》) to ensure capital investment for technological innovation and standardize the use and statistics of funds for scientific research and innovation. With a view to accelerating the establishment and operation of the innovation laboratories, the Company has set up three company-level innovation laboratories and eight innovation laboratories for special fields. The Company promulgated the Supporting Mechanisms and Work Guidelines for Innovation Laboratories/Engineering Technology Centers (Trial) (《創新實驗室/工程技術中心配套機制及工作指引 (試行)》), specifying the mechanism for updating the supporting innovation management system. With a focus on the actual needs of technological innovation, the Company continued to optimize the supporting management procedures. The Company organized the CNAHC Group youth innovation talent seminar and sharing and exchange activities with some leading innovation enterprises, aiming to promote the exchange of views on the work of technological innovation, foster internal and external innovation wisdom and explore insights for innovative work approaches. In order to improve synergistic innovation, the Company actively participated in strategic alliances for industrial technological innovation to facilitate the effective coordination between the innovation laboratories and external business partners based on the guidance of the needs for innovation resources and the intent of collaboration. As of the end of the Reporting Period, the Company's project named the "Management Platform for Aircraft Condition Prediction and Maintenance Operation" (《飛機狀態預測和維修作業管理平台》) won the second prize of 2020 Science and Technology Award granted by China Communications and Transportation Association.

MAJOR SUBSIDIARIES AND ASSOCIATES AND THEIR OPERATING RESULTS

Notes: 1. CNACG is a wholly-owned subsidiary of CNAHC. Accordingly, CNAHC is directly and indirectly interested in 51.70% of the shares of the Company.

2. Shandong Aviation Group Corporation is owned as to 49.4% by the Company, while Shandong Airlines is owned as to 42% by Shandong Aviation Group Corporation. Accordingly, Shandong Airlines is directly and indirectly owned as to 43.548% by the Company.

During the Reporting Period, the operating results of the major subsidiaries and associates of the Company were as follows:

The fleet information and operating data of the major subsidiaries and associates of the Company were as follows:

*Note: As at the end of the Reporting Period, Beijing Airlines operated a fleet of four entrusted business jets and one self-owned business jet with an average age of 8.41 years. During the Reporting Period, in terms of business charter service, Beijing Airlines completed 348 flights, representing a year-on-year decrease of 6.7%; it completed 1,034 flying hours, representing a year-on-year decrease of 27.78%; it carried a total of 2,222 passengers, representing a year-on-year decrease of 31.16%.

OPERATIONAL PLAN

The Company has established its operational focuses for 2021, including (1) containing the pandemic in a solid and meticulous manner; (2) strengthening operation safety; (3) effectively maximizing operating performance; (4) continuously improving product and service quality; (5) firmly deepening the reform; and (6) relentlessly pushing forward the quality development of the Party building.

OUTLOOK FOR FUTURE

In-depth implementation of national strategies for the civil aviation industry in China

China's civil aviation industry will further implement national initiatives and regional strategies, namely the "Belt and Road" initiative, the Ecological Protection and High-quality Development Strategy of Yellow River Basin, the Yangtze River Economic Belt Development Plan, the Yangtze River Delta Integration Plan, the "Beijing-Tianjin-Hebei" Integration Plan, the Plan for Xiong'an New Area and Guangdong-Hong Kong-Macau Greater Bay Area Development Plan, and will strengthen regional aviation links and coordination as well as the existing landscape of the aviation market. The "Belt and Road" initiative will promote China's economic and trade exchanges and cooperation with Southeast Asia and Europe, not only strengthening the international hub status of Shanghai and Guangzhou, but also providing development opportunities for airports in domestic second-tier cities. The Ecological Protection and High-quality Development Strategy of Yellow River Basin will promote the economic development and optimization of industrial structure of the nine provinces and regions along the Yellow River, which will present development opportunities for the aviation industry. The Yangtze River Economic Belt Development Plan and Yangtze River Delta Integration Plan will speed up the formation of the aviation network with Shanghai international aviation hub and regional aviation hub as the core. The strategy of coordinated development of Beijing-Tianjin-Hebei and the Plan for Xiong'an New Area will significantly enhance the international competitiveness of Beijing aviation hub, and the hub function will be further strengthened, which will promote the regional development of Tianjin and Hebei. The Guangdong-Hong Kong-Macau Greater Bay Area Development Plan will deepen the cooperation between the Mainland and Hong Kong and Macao, and promote the construction of international hubs of Hong Kong, Guangzhou and Shenzhen. The construction of airport groups serving the three major urban agglomerations received increasing attention from the State, and the pattern of "one city, two airports" in Beijing, Shanghai, Chengdu and other major cities has taken or is taking shape.

Gradual resumption of passenger and freight volume in the civil aviation industry in China

In 2020, the COVID-19 pandemic has brought great challenges to the civil aviation industry. In 2021, as vaccines are gradually becoming available, the global pandemic may be alleviated. There will be no change in the fundamentals of the Chinese economy or in the basic trend of economic stability and long-term improvement thereby the economy will achieve steady recovery. Although the world economy is undergoing profound adjustment, the overall trend of economic globalization will remain unchanged, while China's development still sees strategic opportunities. Leveraging the super large-scale domestic demand market formed with a population of 1.4 billion, including a middle-class group of more than 400 million, China is striving to build a new development pattern which is based on domestic macrocirculation, along with the international and domestic dual-circulation under mutual promotion. Civil aviation demand in China will continue to rise and market potential will remain immense. The aviation market in China will continue its recovery. In the long run, the demand for air travel will remain strong with huge market potential. As the pandemic is brought under control, business travel and holiday tours continue to be drivers of the development of the aviation industry, and air travel will become increasingly customized and popular. During the "14th Five-Year Plan" period, airport renovations and expansions are underway in various regions and the industry will embrace immense opportunities with increasing time slots and other key resources.

More intense competition among global and domestic aviation markets

As affected by the COVID-19 pandemic, as of the end of the Reporting Period, over 40 airlines worldwide have either ceased or suspended operation and more airlines are experiencing operation difficulties due to cash consumption. Based on the current situation, the global civil aviation industry may undergo a new round of restructuring.

From the perspective of the international market, as the pandemic prevails in overseas countries and regions, the demand for travelling abroad will recover slowly in the future and hence the Company will slow down the introduction of wide-body aircraft. From the perspective of the domestic market, as the domestic airline market has basically bottomed out, various airlines will shift certain international market capacities to the domestic market, which will further intensify the competition in the domestic market.

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 report so as to better understand the financial conditions and results of operations of the Group as a whole.

Revenue

During the Reporting Period, the Group's revenue was RMB69,504 million, representing a decrease of RMB66,677 million or 48.96% as compared with last year. Among which, air traffic revenue was RMB64,280 million, representing a decrease of RMB65,977 million or 50.65% as compared with last year; other operating revenue was RMB5,224 million, representing a year-on-year decrease of RMB700 million or 11.82%.

Revenue Contributed by Geographical Segments