Air China Regulatory News (AIRC)

(short name: ) (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 "" 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 innovation and excelling efforts.

Air China was listed on The Stock Exchange of Hong Kong Limited (stock code: 00753) and the London Stock Exchange (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, Xinjiang, Guangdong, Guizhou, Tibet and Wenzhou. 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 remains committed to the mission of "put safety first, serve passengers with credibility, convenience, comfort and choice, maintain stable development, help employees achieve success and fulfill corporate responsibilities", advocates the values of "people-oriented, accountable, excelling efforts and enjoyable flights" and positions the brand as "professional and reliable with both international quality and Chinese temperament". The "Air China Miles" programme of Air China 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".

Contents

Corporate Information

REGISTERED CHINESE NAME:

ENGLISH NAME:

Air China Limited

REGISTERED OFFICE:

1st Floor-9th Floor 101

Building 1

30 Tianzhu Road

Shunyi District

Beijing, the PRC

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

Ma Chongxian

Wang Mingyuan

Feng Gang

Patrick Healy

Xiao Peng

Li Fushen

He Yun

Xu Junxin

Winnie Tam Wan-chi

SUPERVISORS:2

Xiao Jian

Lyu Yanfang

Guo Lina

Wang Mingzhu

Li Shuxing

LEGAL REPRESENTATIVE OF THE COMPANY:

Ma Chongxian

JOINT COMPANY SECRETARIES:

Huang Bin

Huen Ho Yin

AUTHORISED REPRESENTATIVES:

Ma Chongxian

Huang Bin

LEGAL ADVISERS TO THE COMPANY:

DeHeng Law Offices (as to PRC Law)

DLA Piper Hong Kong (as to Hong Kong SAR Law 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

1 For details of changes in Directors of the Company during the Reporting Period and up to the date of this annual report, please refer to page 53 of this annual report.

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 54 of this annual report.

Chairman's Statement

2022 REVIEW

The year 2022 is an important year for the comprehensive implementation of the "14th Five-Year" Plan and the commencement of the new journey of building a modern socialist country in an all-round manner. Over the past year, the Group rose to challenges and fought hard to ensure safe operation with its best endeavors, exert itself to respond to operating difficulties, persistently improve its services, steadily deepen the reform, continue to push ahead with the in-depth development of the Board and comprehensively promote party building and sustained smooth and orderly development in all aspects of work.

Fulfilling its responsibilities by maintaining safe and stable development. The Group always regards safety as its primary political responsibility and top priority and adopts intense and solid measures in this regard. The concept of safe development has been applied comprehensively and the responsibilities of safe operation have been strictly implemented. In order to conscientiously implement the work requirements of the Work Safety Committee of the State Council and the Civil Aviation Administration, the Group further conducted major inspection for safety purpose and investigation and rectification of hidden safety hazards, thereby drawing a successful end to the Three-year Action Plan for Specific Safety Rectification. Based on the characteristics of its operation, the Group also carried out in-depth general survey of the technological conditions of all of its fleet, continued to strengthen the prevention and control of operation risks of flights and improved the security assessment of key routes, which have enhanced its safety security capability and ensured safe operation. Strenuous efforts have been made to promote style development and enhance the awareness of safety issues as well as the relevant rules and regulations among the frontline staff to consolidate the foundation of security work. Important transportation safeguard missions for the Beijing Winter Olympics, the 20th National Congress of the CPC and other major events were completed with high quality during the period.

Stabilizing the fundamentals of operation with a tenacious spirit. Upholding the strong determination to control loss and bottom out, the Group coordinated work in relation to operation arrangement and safe operation and kept the fundamentals of its operation stable amidst the challenging and complicated operation conditions. The Group dynamically adjusted its transport capacity based on market demand, aiming to promote the optimization of both domestic and international fleet capacity structure, consolidate the market share of its main bases and maintain its operation scale on the basis of serving the large domestic market. It has also exercised refined control over marketing activities, actively maintained the order of the passenger transportation market, improved sales arrangement and revenue management and enriched the service and product mix in order to stabilize flight revenue. Furthermore, the Group further implemented the mechanism that covert passenger aircraft for cargo operations to consolidate the economies of scale of cargo flights by passenger aircraft with a view to actively broadening its revenue base. The Group exercised stringent cost control and strived to reduce costs and expenses by all means, and has therefore adjusted the phase-out plan of aircraft and exercised more precise

management and control over major cost items. While resolutely guarding the bottom line for risk management, the Group actively adjusted the debt structure and enhanced its capital management and control to ensure the liquidity safety.

Enhancing the service level with unremitting tenacity. The Group was dedicated to the people-oriented development philosophy and made great efforts in improving its services. In order to further improve the service management system, the Group promoted in-depth development during the "Civil Aviation Service Planning and Implementation Year" with an aim to improve the standard service system and promote the professional development of its staff. Flight regularity was enhanced in an effort to optimize the air travel services process on a continuous basis. It also launched featured services and products of Air China's brand and upgraded a series of software and hardware, thereby creating a service brand with increased competitiveness and influence to offer better travel experience for the passengers. In addition, all the domestic terminals have realized the full coverage of "paperless" travel services and the global platform for ground service and flight support services has commenced operation at fully capacity, enhancing the level of service digitalization.

Reform and innovate in the spirit of striving for the success aggressively. The Group precisely grasped its responsibility and mission in building the new development paradigm, and promoted high-quality development in pursuit of the concept of the country's fundamental interests. Maintaining its strategic focus, the Group has accelerated the development of Beijing Capital International Airport as a world-class hub, and at the same time actively participated in the operation of Daxing Airport in a bid to create new drivers for national development. The Group further promoted the improvement of the corporate governance mechanism, achieved a full coverage of the tenure system and contractual management for members of the management, and successfully completed its primary tasks of the three-year action of reform. In addition, the Group accelerated digital transformation, enhanced data asset management capabilities, deepened data security management and completed the development of a data asset centre. By implementing the concept of green and low-carbon development, the Group formulated the " Dual-carbon" action plan, improved the management system of green development, and enhanced the capability and efficiency of environmental governance.

Enhancing the corporate governance capabilities with a focus on the development of the Board. Focusing on the promotion of the development of the Board that is characterized by "professional, dedicated, regulated and efficient" operation, the Group has organized and completed the re-election and appointment of members of the Board with strong emphasis placed on ensuring the operation, decision-making and services of the Board, and to enhance the quality of both operation and decision-making of the Board in a systematic manner. The Group has also strengthened the supervisory role of the Board and enhance the Company's risk resistant ability, striving to contribute to the development of a world-class aviation transportation group through the high-quality development of the Board.

Pursuing high-quality party building to ensure high-quality development. The Group has effectively pushed forward the learning, promotion and implementation of the philosophy of the 20th National Congress of the CPC to further clarify the direction of our struggle for quality development in the future. Always adhering to political work as the priority, the Group has strengthened the leadership of the Party in improving the corporate governance, consolidated the development of the Party's internal rules and regulations, strengthened the team building of talented cadres, further promoted the full and strict self-governance of the Party, and continued to create an honourable and upright political ecology and development environment.

The year 2023 is the first year of the implementation of the spirit of the 20th National Congress of the CPC, which is also a crucial year for the implementation of the "14th Five-Year" Plan regarding its continuity. The Group will adhere to the underlying principle of pursuing progress while ensuring stability, fully, precisely and comprehensively implement the new development philosophy, contribute to and integrate with the new development paradigm, thereby focusing on promoting high-quality development. With solid actions to accelerate its development into a world-class aviation and transportation group, the Group will make new and greater contributions to building a modern socialist country in an all-round manner!

Ma Chongxian

Chairman

Beijing, China

30 March 2023

Summary of Financial Information

(RMB'000)

Notes:

(1) EBITDA represents earnings before finance income and finance costs, exchange gains/losses, income tax credit/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 2022, the Group introduced a total of 36 aircraft, including seven A350, nine A320NEO, twelve A321NEO and eight ARJ21-700, and phased out 20 aircraft, including four A330-200, eight B737-800, five B737-900 and three A319 aircraft.

As at the end of the Reporting Period, the Group had a total of 762 aircraft including business jets, with an average age of 8.59 years, of which the Company operated a fleet of 487 aircraft in total, with an average age of 8.61 years. The Company introduced 31 aircraft and phased out 11 aircraft.

Details of the fleet of the Group as at 31 December 2022 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

Safe Operation

The Group firmly established the awareness that safety responsibility is political responsibility, conscientiously implemented the 15 measures of operation safety of the Work Safety Committee of the State Council, focused on the goal of creating a world-class model enterprise, enforced the responsibility of operation safety at all levels, constantly improved the operation safety system, and continuously enhanced the development of the "four systems", namely safety management, flight training, aircraft maintenance, and operation management. Based on the characteristics of its operation, the Group continuously strengthened the operation safety process control and key risk control, and focused on improving the quality of flight technology. With flight data management and application system successfully put into use, the Group further promoted major inspection for safety purpose and investigation and rectification of hidden safety hazards.

The Group effectively ensured the proper implementation of preventing and eliminating major safety risks and special improvement annual actions in "8 safety areas" such as aviation, air defense, cargoes and dangerous goods. It continued to improve the Company's overall emergency response plan and enhance the Company's emergency response capability. The Group promoted the style development and education of safety personnel, improved the quantitative assessment mechanism of safety style, and organized and carried out lecture activities on operation safety. It successfully accomplished a series of important transportation missions such as the 20th National Congress of the CPC, the Beijing Winter Olympics/Paralympics, the Spring Festival travel rush, the Two Sessions, evacuation of nationals, and China International Import Expo. Regarding the safeguard tasks for the Beijing Winter Olympics and Winter Paralympics, we achieved zero error in safety, zero infection in personnel and zero complaint in service.

During the Reporting Period, the Group recorded 1.0318 million safe flight hours, transported 38.6058 million passengers safely, continuously maintaining an overall stable and safe operation.

Maximising Operating Performance

Focusing on the core air traffic business, the Group made every effort to maximise operating performance. The Group was determined to control losses and extricate itself from difficulties, coordinated its safe operation and business operation, organized production and operation based on the principles of "maximizing revenue, marginal contribution, yield and profit", effectively promoted quality improvement and efficiency enhancement and stabilized the operation fundamentals.

Relying on the domestic market, the Group strived to increase its investment in major domestic cities, and continuously built six high-quality express routes from Beijing to Shanghai, Hangzhou, Chengdu, Chongqing, Guangzhou and Shenzhen. By increasing flight density, stabilizing the input of wide-body aircraft and optimizing flight schedules, the Group further matched the travel demand of business passengers, and thus achieved improvement of service quality and revenue quality. The Group refined the adjustment of flight schedules, destinations, aircraft articulation and other elements, and reduced operating costs by optimizing the flight-, aircraft- and crew-related aspects to ensure simultaneous improvement of safety, operation management level and operational efficiency. It closely monitored market changes, balanced the relationship between volume and price, and enhanced the quality of income. The Group continued to push forward the integration mechanism of passenger aircraft for cargo operations and consolidated the advantages in economies of scale of cargo flights by passenger aircraft, operating 15,000 cargo flights by passenger aircraft during the reporting period.

Adhering to strict cost control, the Group adjusted the pace of aircraft introduction and retirement to ease cost rigidity. It improved the precision of major cost control and further explored the potential of operating cost reduction. The Group seized the opportunities arising from the interest rate window period to promote debt swaps, reduce the average borrowing rate and save financial costs. Sticking to safeguarding the bottom line of risks, the Group properly made medium and long-term funding arrangements and ensured the security and stability of funds.

Enhancing Services

Always staying committed to the people-centered development ideology, the Group insisted on the strategic goal of developing world-class services. The Group continued to upgrade services and products, optimize and improve various aspects of its services, accelerate the digital transformation of services, systematically enhance the quality of services, effectively enhance passenger satisfaction, and develop a more competitive and influential service brand.

To optimize all aspects of the full-process of air travel service, the Group supplemented and revised the "General Conditions for passenger and luggage transportation of Air China", including the important provisions on transport services for people with disabilities, ticket refund and change rules as well as the standards for handling irregular tickets, and further improved the friendliness of ticket and passenger regulations. The Group strengthened the management and control of flight operations, resulting in a higher flight regularity

rate than the industry average. The Group has made good efforts in safeguarding services for passengers and protecting their health and safety during air travel, and has properly made ticket handling and passenger reminders. The Group issued 705 special handling plans for passenger tickets, sent travel reminders to 542,000 passengers who had purchased tickets, taking the lead in automatically verifying passengers' health information online. In addition, the Group launched the "Healthy Travel" service as the first-mover, covering 28 overseas terminals. It also offered the automatic seat protection function for specific passengers such as transit passengers on irregular flights and unaccompanied children, optimized the service process of irregular flights, and increased the service efficiency for irregular flights.

To create a new visual and comfy experience with Air China's brand features, the Group promoted the implementation of the new design standards of the "Zixuan" and "Zichen" self-owned lounges to create more culturally appealing and interactive lounges. It also launched the new "Phoenix Dance in the Cloud" cabin visual package products, the operating interface of the in-flight entertainment system, and the new IP images of "Air China Boabei - Long Xiaobao and Feng Xiaobei" with more Air China cultural characteristics, bringing passengers a refreshing visual enjoyment and a unique cultural experience with oriental aesthetics. The Group created the

"Cloud China" in-flight catering concept, established the Airline Gourmet Research Institute, built an "Airline Wine Cellar", created a new model of snack meals and breakfast for economy class, thereby promoting Air China's reputation for catering and shaping the taste of Air China.

Digital Transformation

To accelerate the digital transformation and speed up the promotion of high-quality development, the Group set up a digital transformation integration team to complete the top-level structural design of the aircraft asset management system. With the project construction of Business Model Phase II officially commenced, the Group has completed the construction of the product centre and marketing centre and the redevelopment of the call centre. The Group also completed the development of the data asset centre and coordinated data management for material IT construction projects by enhancing data asset management capabilities and intensifying data security management. It put into full operation of Air China's safeguarding platform of global ground flights, realizing the triangular closed-loop management of flight monitoring and command, smart resource allocation and mobile empowerment of the front-line, and comprehensively enhancing flight operation control capabilities. The Group optimized and upgraded the flight attendant qualification management system, achieving electronic operation of flight attendant training and qualification.

The Group expanded digital and smart service support, and steadily upgraded the level of digitalization. All the domestic terminals have realized full coverage of "paperless" travel services. The Air China App accomplished smart transit guidance at four airports, including the airports in Beijing and Chengdu, while 30 domestic terminals commenced full-process and real-time baggage tracking and inquiry. Ten types of special services, including unaccompanied children, realized automatic booking. Paying attention to the elderly passenger group, the Group introduced a check-in function specially designed for elderly passengers, fulfilling the barrier-free renovation of the domestic website. It also completed the retrofitting of in-cabin Wi-Fi LAN services on 354 aircraft and realized the capability of air-ground interconnection service on 23 A350 aircraft. It continued to optimize and improve the service knowledge base system, service quality management system and other service management information systems, thus promoting the level of service digitalization.

Risk Prevention and Control

Focusing on the prevention and elimination of major risks, the Group continued to further push forward the four-in-one collaboration mechanism of "emphasizing the rule of law, strengthening internal control, promoting compliance and preventing risks", put great efforts to improve the development of risk control and compliance system and enhance foreign-related compliance capabilities, and organized and carried out the special action of "the year of strengthening compliance management". Adhering to the problem-oriented and goal-oriented principle, the Group accelerated the implementation of the full-process, full-chain and full-coverage risk prevention and control.

The Group secured a stable operation mechanism of risk research and assessment. Following the governance decision-making procedures, the Group actively and steadily reviewed and assessed annual major risks through in-depth research and thematic diagnosis, and implemented measures comprehensively. Through increasing the precision degree of risk quantification, it further improved the graded and classified rolling monitoring of important risk issues and conducted closed-loop management. The Group implemented a regular mechanism for annual inspection on overseas legal risks, which highlighted the focused areas on risk control over foreign-related compliance operation. It enhanced the quality of risk assessment for the purpose of decision-making. Based on the premise of ensuring compliance, the Group evaluated the risk of decision-making on the "three key and one major issues" as far as possible and took the initiative to prevent and eliminate risks. It promoted the in-depth integration of risk assessment into reform and development, central tasks and material project management. The Group soundly improved the coordinated mechanism of risk prevention and control. The management supervised the progress of key tasks, focused on research and assessment on the difficulties in risk control and management, and promoted the practical experience of risk control and management. It continued to strengthen the information sharing mechanism among risk control compliance and discipline inspection, patrol and audit, and jointly established three lines of defense for risk prevention in management coordination. The risk prevention and control responsibility mechanism was comprehensively consolidated. With strict risk classification and hierarchical management, the Group enforced the responsibilities of risk mitigation to the specific position and individual staff to enhance the ability to oversee the full-process of risk management.

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 high-quality development of the aviation industry in the PRC. The Company is also committed to leading the industrial development by establishing itself as a "National Brand", while pursuing outstanding performance through innovation and excelling efforts. By maintaining its world-class safety operation performance and leading comprehensive operating strengths in Mainland China, the Group has extensive brand recognition and excellent brand reputation among consumers.

In 2022, Air China launched its Winter Olympics Games promotional activities and told the Winter Olympics stories of Air China with a focus on safeguarding the transportation services for the Winter Olympics Games and Paralympic Winter Games, thereby establishing the good brand image of the aviation company representing "both the Summer Olympic Games and the Winter Olympic Games". Leveraging large-scale fairs such as China International Aerospace Expo, the China International Travel Mart and the China-Eurasia Expo as the platform, the Company actively carried out external brand collaboration and exchanges and demonstrated its operational strengths and brand image. It commenced cooperation with industry leading enterprises such as China State Railway Group Co., Ltd., FAW Hongqi and China Quanjude (Group) Co., Ltd. with an aim to improve service quality, enhance brand values and brand competitiveness. According to the ranking list released by the World Brand Lab, Air China ranked no. 285 in the 2022 World's 500 Most Valuable Brands and ranked no. 24 in the 2022 China's 500 Most Valuable Brands with a brand value of RMB213.659 billion. Meanwhile, the Company was awarded the 2022 "No. 1 China Brand of the Year (Aviation Services Category)" (No.1) and 2022 "China Brand of the Year - Special Award: Culture Brand Award" (--).

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". 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 business 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 stronger position for market competition.

Upon the commencement of operation of Beijing Daxing International Airport, 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 establishment 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.

During the Reporting Period, leveraging the domestic market and focusing on the advantageous resources, the Group continued its efforts in building six high-quality express routes from Beijing to Shanghai, Hangzhou, Chengdu, Chongqing, Guangzhou and Shenzhen to further align with the travel demands of business customers and travellers, and to secure a core position in the principal Beijing market with high-frequency and high-quality flight routes. The Group also realized optimization and enhancement of "three aspects" in flight-, aircraft- and crew-related aspects and improved the efficiency of operation safeguard by making refined adjustment to flight schedules, destinations, aircraft articulation and other elements of Beijing Capital International Airport. The Group pragmatically pushed forward and implemented works in relation to the gradual resumption of certain international direct flights to Beijing and over 20 direct international flights to Beijing have resumed services successively.

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 implemented national development strategies with consistent efforts made in building a world-class hub in Beijing and an international hub in Chengdu. Through the experience accumulated in its operation over the years, the Company formed an extensive and balanced domestic and international route network, covering the most economically-developed and densely-populated regions in China.

Based on the domestic macro-circulation, the Group made full use of the resources of its flight network and reasonably allocated the transport capacity of various bases to accelerate the development of the domestic market. Sparing no efforts in arranging as many international flights as possible, the Group has gradually recovered or increased the transport capacity for the relevant countries or regions to sustain flights in important international aviation markets, and hence strengthened the advantages of its market share in terms of long-haul flights. The Group actively pressed on with the development of the "Silk Road in the Sky" and further developed the six economic corridors under the "One Belt One Road" initiative and the flight routes to Europe, America and Africa with a view to establishing its new competitive edges under the international and domestic dual-circulation and increase the international discourse power of China's civil aviation industry.

During the Reporting Period, the Company launched new flight routes such as Chengdu Tianfu-Yangzhou, Chengdu Tianfu-Linyi, Chengdu Tianfu-Hengyang, Chongqing-Nantong, Hangzhou-Shiyan and Hohhot-Bayannur, and completed the first voyage of Chengdu Shuangliu- Lhasa-Shannan Longzi Airport and Chengdu Shuangliu- Lhasa-Shigatse Tingri Airport routes. In 2022, the Company resumed international and regional passenger flights in a steady and orderly manner, among which 43 international and regional passenger flights have resumed services with increased flights, including Beijing-Frankfurt, Shanghai Pudong-London, Hangzhou-Rome and Chengdu-Hong Kong.

High quality customer base

In line with the Company's strategy for hub network, the Group 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 75.1126 million. Revenue contributed by frequent fliers accounted for 51.9% of the Company's air passenger revenue. The number of new registered users of Air China APP reached 1.5653 million, which brought the total number of users to 15.987 million. The Company newly acquired 435 customers, which brought the total number of effective major customers to 2,839.

Leading cost control mechanism

To cope with the operation difficulties, the Group firmly established the "austerity" concept and implemented stringent cost control measures. Without prejudice to safe operation, the Group has controlled its asset-related costs at source through measures such as improve the integrity rate of existing equipment, increase resources sharing, optimize the pace of aircraft introduction and investment in infrastructure and increase centralized procurement. Meanwhile, the Group reduced operating costs during the process by reducing fuel consumption, securing preferential takeoff and landing charges, optimizing aircraft maintenance plans and strictly controlling non-safety and non-production-related expenses, on the premise that investment in safety operation is secured.

Continuous innovation of management mechanism

The Group persisted with innovation as the primary driving force for corporate development and solidly promoted the implementation of technological innovation and development plans under the "14th Five-year" plan. The Group also actively participated in collaboration for major technological breakthroughs and further accelerated digital transformation to enhance innovation capabilities and stimulate innovation vitality, thereby deeply integrating the concept of innovation into its journey of accelerated development of a world-class enterprise.

In a bid to promote the implementation of the technological innovation and development plans under the "14th Five-year" plan, the Group has strengthened the efforts in innovating the top-level design and enhanced its innovation management capability. It has independently developed and launched a working platform for innovation management, which covered three innovation channels (namely, the innovation laboratories/engineering technology centres and innovation bases) horizontally, and connected the management of projects throughout the entire lifecycle from solicitation of creative ideas to the conversion of innovation results vertically, thereby creating an effective carrier for improving its innovation management capability comprehensively. Efforts have also been made to further advance the development of the system comprising innovation laboratories/engineering technology centres and the establishment of aeronautical innovation laboratories. The "Aircraft-ground Crossfeed Fuel System Project" was awarded the Exemplary Technological Innovation Award by the China International Fair for Trade in Services, and the "Management Platform for Aircraft Condition Prediction and Maintenance Operation" won the second prize of 2021 Science and Technology Award granted by China Association for Quality, both signifying the accelerated accumulation of its innovation achievements.

MAJOR SUBSIDIARIES AND ASSOCIATES AND THEIR OPERATING RESULTS

Notes: 1. As at the end of the Reporting Period, 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. As at the end of the Reporting Period, 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.

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 9.52 years. During the Reporting Period, in terms of business charter service, Beijing Airlines completed 310 flights, representing a year-on-year increase of 5.44%; it completed 837.17 flying hours, representing a year-on-year decrease of 14.87%; it carried a total of 2,361 passengers, representing a year-on-year decrease of 6.61%.

OPERATIONAL PLAN

The Company has established its operational focuses for 2023, including (1) insisting on achieving safe operation with the highest standards and strictest requirements; (2) safeguarding the recovery of operation with more precise measures; (3) staying committed to win the hard battle to reduce losses and extricate itself from difficulties in a concerted effort; (4) focusing on key issues and continuing to promote in-depth reform and innovative development; (5) putting unremitting efforts to improve service and product standards; (6) continuing to strengthen the political assurance of high-quality development.

OUTLOOK FOR FUTURE

Making contributions to the national development strategies by the civil aviation industry in China

China's civil aviation industry will pursue the mission of giving full play to its role as a strategic industry during the process of high-quality development of China. Playing a supporting role in promoting the economic circulation and expanding traffic flows, it will further improve the modern airport system and route network mutually in line with national economic and social development, the spatial development pattern of the country and the layout of major productivity, contributing to the major national regional strategies and regional coordinated development strategies. Promoting the development of the "Silk Road in the Sky", the industry will further optimize its overseas market layout and expand the global coverage to facilitate China's further participation in the division of labor and cooperation among the industries globally. Playing the role of promoting the structural transformation and upgrade of the economy, the civil aviation industry will encourage manufacturers to continuously improve the quality and performance of their products, thereby promoting the development and robust growth of China's aviation industry. Playing the leading role of civil aviation industry in the upgrading of consumption, it will continue to innovate services and products to improve the people's quality of life. Giving play to its leading role in the comprehensive transportation system, the civil aviation industry will develop a modern comprehensive transportation hub and implement multiple-modal interlink operation to facilitate the rapid development of China into a strong nation in terms of transport.

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

There is 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 paradigm which is based on domestic macro-circulation, 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.

In 2023, China's civil aviation industry will embrace a turning point for recovery. Business travel and holiday tours will accordingly continue to be growth drivers of the aviation industry, and air travel demand will become increasingly diverse, customized and popular. During the "14th Five-Year Plan" period, construction of new airports and airport renovations and expansions are underway in various regions and the capability in air traffic management is steadily increased, which will better satisfy the demand of the industrial development.

Competition landscape of the domestic aviation market

It is expected that the competitive pressure will be mitigated in the domestic aviation market. Regarding the demand side, as the national economy remains stable and improved, the foundation of industrial recovery and development will be more solid, envisaging the domestic market demand will continue its revival. On the supply side, the major airlines will proactively adjust the pace of fleet retirement in accordance with market conditions, with the industry-wide fleet size (cumulative annual average number of aircraft registered) growing at a slower pace in 2022 than in 2021. The slowdown in growth of the industry's fleet size during the "14th Five-Year Plan" period is conducive to alleviating the operating pressure arising from the overall excess capacity in the short term and the competition in the industry during the recovery and growth period of post-"14th Five-Year Plan". In terms of policy, the reform of the civil aviation flight schedule management system and mechanism supports the tilting of core resources towards the main operators of hub airports, leading to the differentiated operation of various types of airlines in the market and reducing homogeneous competition.

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 RMB52,898 million, representing a decrease of RMB21,634 million or 29.03% as compared with last year. Among which, air traffic revenue was RMB48,381 million, representing a decrease of RMB21,049 million or 30.32% as compared with last year; other operating revenue was RMB4,517 million, representing a year-on-year decrease of RMB585 million or 11.47%.

Revenue Contributed by Geographical Segments

Air Passenger Revenue

During the Reporting Period, the Group recorded an air passenger revenue of RMB38,296 million, representing a decrease of RMB20,021 million over the previous year. Among the air passenger revenue, the decrease of capacity contributed a decrease of RMB21,511 million in the revenue, and the decrease of passenger load factor led to a decrease of RMB3,165 million in the revenue, while the increase of passenger yield resulted in an increase in revenue of RMB4,655 million. The Group's capacity, passenger load factor and yield per RPK in 2022 are as follows:

Air Passenger Revenue Contributed by Geographical Segments

Air Cargo and Mail Revenue

During the Reporting Period, the Group's air cargo and mail revenue was RMB10,085 million, representing a decrease of RMB1,029 million as compared with last year. Among which, the decrease of capacity contributed a decrease of RMB2,514 million in the revenue, while the increase of cargo and mail load factor resulted in an increase in revenue of RMB186 million, and the increase of yield of cargo and mail resulted in an increase of RMB1,299 million in the revenue. The capacity, cargo and mail load factor and yield per RFTK in 2022 are as follows:

Air Cargo and Mail Revenue Contributed by Geographical Segments

Operating Expenses

During the Reporting Period, the Group's operating expenses were RMB91,716 million, representing a decrease of 3.93% from RMB95,465 million of last year. The breakdown of the operating expenses is set out below: