Air China Regulatory News (AIRC)

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AIR CHINA LIMITED

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

(Stock Code: 00753)

INTERIM RESULTSFOR THE SIX MONTHS ENDED 30 JUNE 2023

 INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2023

The Board presents the unaudited interim results of the Group for the six months ended 30 June 2023 as follows:

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE SIX MONTHS ENDED 30 JUNE 2023

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2023

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2023

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2023

1. BASIS OF PREPARATION

The condensed consolidated financial statements for the six months ended 30 June 2023 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" ("IAS 34") issued by the International Accounting Standards Board (the "IASB") as well as with the applicable disclosure requirements of Appendix 16 to the Listing Rules. The condensed consolidated financial statements do not include all the information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's consolidated financial statements for the year ended 31 December 2022.

As at 30 June 2023, the Group's current liabilities exceeded its current assets by approximately RMB 69,072 million. The liquidity of the Group is primarily dependent on its ability to maintain cash inflows from operations and sufficient financing to meet its financial obligations as and when they fall due. Considering the Company's sources of liquidity and the unutilised bank facilities of RMB118,035 million as at 30 June 2023, the Directors believe that adequate funding is available to fulfil the Group's debt obligations and capital expenditure requirements to enable the Group to continue in operational existence for the foreseeable future when preparing these condensed consolidated financial statements for the six months ended 30 June 2023. Accordingly, these condensed consolidated financial statements have been prepared on a basis that the Group will be able to continue as a going concern.

2. PRINCIPAL ACCOUNTING POLICIES

The condensed consolidated financial statements have been prepared on the historical cost basis except for certain financial instruments, which are measured at fair values.

Other than application of new and amendments to IFRSs, the accounting policies and methods of computation used in the condensed consolidated financial statements for the six months ended 30 June 2023 are the same as those presented in the Group's annual consolidated financial statements for the year ended 31 December 2022.

Application of amendments to IFRSs

In the current interim period, the Group has applied the following new and amendments to IFRSs issued by the IASB, for the first time, which are mandatorily effective for the Group's annual period beginning on 1 January 2023 for the preparation of the Group's condensed consolidated financial statements:

The application of the new and amendments to IFRSs in the current interim period has had no material impact on the Group's financial positions and performance for the current and prior periods and/or on the disclosures set out in these condensed consolidated financial statements.

3A. REVENUE

Disaggregation of revenue from contracts with customers

3B. SEGMENT INFORMATION

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

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

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

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

Operating segments

The following tables present the Group's consolidated revenue and loss before taxation regarding the Group's operating segments in accordance with the CASs for the six months ended 30 June 2023 and 2022 and the reconciliations of reportable segment revenue and loss before taxation to the Group's consolidated amounts under IFRSs:

For the six months ended 30 June 2023 (Unaudited)

For the six months ended 30 June 2022 (Unaudited)

The following table presents the segment assets of the Group's operating segments under CASs as at 30 June 2023 and 31 December 2022, and the reconciliations of reportable segment assets to the Group's consolidated amounts under IFRSs:

Geographical information

The following tables present the Group's consolidated revenue under IFRSs by geographical location for the six months ended 30 June 2023 and 2022, respectively:

For the six months ended 30 June 2023 (Unaudited)

For the six months ended 30 June 2022 (Unaudited)

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

There was no individual customer that contributed 10% or more of the Group's revenue during the six months ended 30 June 2023 (six months ended 30 June 2022: CNAHC and its subsidiaries (other than the Group) contributed 30% of the Group's revenue).

4. OTHER INCOME AND GAINS

Note: These mainly include flight operation remedies.

5. LOSS FROM OPERATIONS

The Group's loss from operations is arrived at after charging:

6. FINANCE COSTS

The interest capitalisation rates during the period ranged from 2.50% to 3.06% (six months ended 30 June 2022: 1.92% to 4.41%) per annum relating to the costs of related borrowings during the period.

7. INCOME TAX CREDIT

Under the relevant Corporate Income Tax Law and regulations in the PRC, except for three (six months ended 30 June 2022: two) branches and five (six months ended 30 June 2022: three) subsidiaries of the Company, and certain branches of two subsidiaries of the Company which are taxed at a preferential rate of 15%, all group companies located in Mainland China are subject to a corporate income tax rate of 25% (six months ended 30 June 2022: 25%). Subsidiaries in Hong Kong SAR, China are taxed at corporate income tax rates of 16.5%, and subsidiaries in Macau SAR, China are taxed at corporate income tax rate of 12%, for both periods.

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

8. DIVIDENDS

(a) Dividends payable to equity shareholders attributable to the interim period

In accordance with the Company's articles of association, the profit after tax of the Company for the purpose of dividend distribution is based on the lesser of (i) the profit determined in accordance with CASs; and (ii) the profit determined in accordance with IFRSs.

No interim dividend has been declared by the Directors for the six months ended 30 June 2023 (six months ended 30 June 2022: Nil).

(b) Dividends payable to equity shareholders attributable to the previous financial year, approved during the current interim period

No dividend has been declared by the Directors for the financial year of 2022 during the six months ended 30 June 2023 (six months ended 30 June 2022: Nil).

9. LOSS PER SHARE

The calculation of the basic loss per share is based on the loss attributable to ordinary equity shareholders of the Company of RMB3,447 million (six months ended 30 June 2022: RMB19,437 million) and the weighted average number of 15,392,419,484 (six months ended 30 June 2022: 13,734,960,921) ordinary shares in issue during the period, as adjusted to reflect the number of treasury shares held by Cathay Pacific Airways Limited ("Cathay Pacific") through reciprocal shareholding.

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

10. ACCOUNTS RECEIVABLE

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

11. ACCOUNTS PAYABLE

The ageing analysis of the accounts payable, based on the transaction date, as at the end of the reporting period was as follows:

 SUMMARY OF OPERATING DATA

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

Note: As of 21 March 2023, the Company has acquired the control of Shandong Aviation Group Corporation. Shandong Aviation Group Corporation and its subsidiaries, including Shandong Airlines, have been consolidated into the consolidated financial statements of the Group. For details, please refer to the announcement of the Company dated 21 March 2023. The sections headed "SUMMARY OF OPERATING DATA" and "DEVELOPMENT OF FLEET" in this results announcement include relevant operating data and fleet information of Shandong Airlines and historical data in the above table have been adjusted to a comparable basis.

DEVELOPMENT OF FLEET

During the first half of 2023, the Group introduced a total of 10 aircraft, including four A350 aircraft, two A320 series aircraft, one B737 series aircraft and three ARJ21-700 aircraft, and phased out two B737 series aircraft. As at the end of the Reporting Period, the Group had a total of 902 aircraft with an average age of 9.05 years (the fleet of Shandong Airlines were consolidated into the Group's fleet during the Reporting Period), of which the Company operated a fleet of 493 aircraft in total, with an average age of 8.93 years. During the first half of the year, the Company introduced 8 aircraft and phased out 2 aircraft.

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

Safe Operation

The Group enforced the responsibility of safety at all levels and safeguarded the bottom line of production safety with unwavering efforts. During the Reporting Period, the Group conscientiously implemented the concept of overall national security, carried out in-depth investigations and researches on production safety, effectively carried out specific investigation and rectification of major hidden safety hazards, and actively pushed forward initiatives for this year of strengthening safety management. It has also solidly pushed ahead with the development of the "four systems" (), namely safety management, flight training, operation management, and aircraft maintenance. At the same time, the Group closely monitored the actual conditions of flight operation, exercised control over the whole process of its flight operation under the complex conditions, coordinated the rapid recovery of flight productivity and the restoration of operation support capability, and properly carried out the specific work for ensuring safe operation. The Group promoted in-depth development of safety style, and continuously improved the working pattern of shared management responsibilities among different governance bodies. During the Reporting Period, the Group recorded 1.1515 million safe flight hours, and successfully accomplished a series of major transportation safeguard missions such as the Two Sessions and evacuation of nationals.

Maximising Operating Performance

The Group adhered to the general principle of pursuing progress while ensuring stability and intensively implemented measures for quality improvement and efficiency enhancement, making every effort to reduce losses and extricate itself from difficulties. Based on the domestic macro-circulation, the Group significantly increased the transport capacity for the domestic market and diligently developed the domestic express routes to enhance its competitive advantages. Seizing the opportunities arising from the rapid recovery of the international market, the Group steadily scaled up its investments and expanded the scale of international routes operation. Meanwhile, the Group gave its best efforts to improve the quality of revenue and maximized its revenue effectively by refining the marketing strategy. Through scientific pricing for interline products, it has realized an increase in revenue from interline products. Furthermore, the Group adjusted the pricing structure of the first class and business class cabins so as to ensure steady improvement of yield level of both cabins. Frequent flier membership policies were also optimized with a focus on the long-term contribution of customers with a view to increasing the stickiness of frequent flier members. The Group strengthened the operation of passenger aircraft for cargo operations to give play to the complementary effect of bellyhold capacity of passenger aircraft in the market and increase the revenue from passenger flights. Cost management and control was further implemented to deeply explore the cost potentials, while the investment in labor costs was optimized continuously in a bid to enhance the contribution to productivity. The Group continued to strengthen its capital management and control and enhanced the management of debt-related risks so as to improve the efficiency of capital use without prejudice to safe capital operation, and to reduce its finance costs.

Reform And Development

Having a keen grasp of the new development stage, the Group clearly defined a model for centralized, synergetic, refined and risk-resistant development to comprehensively promote in-depth synergy of the Group's principal businesses in all aspects. For the key areas of passenger transportation such as route network, cargo spaces management and customer resources management, the Group has achieved synergy through centralization of flight schedules and transport capacities, and strengthened its express route products and optimized the flight schedules of jointly-operated routes in various regions with concerted efforts. The interlink operations across multiple airlines under the Group have been strengthened with a total of 106 thousand flight sectors being operated through interlink operations during January to June, which is 7.3 times of that of the corresponding period last year. The airlines shared their customer resources and realized unification of agreed working standards of customers, operation procedures and the relevant agreements, as well as unification of ground support resources and service standards from the perspective of passengers' perception, thereby improving the service quality and enhancing the efficiency of resources utilization.

The Group promoted the steady implementation of the "14th Five-Year" Plan for green development and made deployment for advancing the carbon peak action plan to empower green and high-quality development with joint efforts. The implementation plan for carbon peak-related works was released, which clarified the strategic direction and technological paths with six major tasks and nine major actions being formulated to serve as the fundamental guidance for the carbon peak action plan. The self-developed carbon emission monitoring and analysis platform realized automatic, systematic, intelligent and integrated management of aviation carbon emission data and established a carbon emission measurement model for civil aviation passengers, which won the "First Prize of the 19th Innovative Achievements of Modernized Management of Transportation Enterprises". The Group participated in the 2nd Civil Aviation Science and Education Innovation Achievement Exhibition (), displaying a total of 21 innovations in the areas of smart travel, aircraft maintenance and technological support. Meanwhile, the Group also contributed to the conservation of biodiversity by setting up the "Join hands with Air China to chase sturgeons in Yangtze River" Wuhan Public Welfare Release Station () to help restoring the endangered fish resources in Yangtze River.

The Group pushed forward specific initiatives for brand leadership and strengthened the efforts in the integration of brand building with its business operation and marketing campaigns with a view to facilitating the high-quality development of the Company. The Group actively responded to the "Belt and Road" initiative by utilizing the commencement of services of flight routes to promote its brand image, and demonstrated its operational strengths and good brand image by leveraging large-scale fairs such as the Exposition of China Brand, the Western China International Fair and other events as the platform. It has also enhanced the international brand influence of Air China through the cooperation with the Star Alliance and overseas industry associations. According to the ranking list released by the World Brand Lab, Air China ranked no. 24 in the 2023 China's 500 Most Valuable Brands with a brand value of RMB235.162 billion, representing a year-on-year increase of RMB21.503 billion and maintaining a leading position in the domestic aviation service industry in terms of ranking and brand value.

Enhancing Services

Staying committed to the people-centered development ideology, the Group strived to improve the quality of its air travel services. During the Reporting Period, the Group pursued the goal and direction of developing world-class products and services. With a focus on passenger demand, it continued to raise service standards and optimize the design of services and products, in a bid to enrich the service experience of passengers at various aspects and solidify the foundation for high-quality development of services.

The Group constantly refreshed and improved the general conditions for transportation, and flexibly formulated and issued special handling plans for passenger tickets in response to special circumstances. It promoted the upgrade of air-ground products, and launched Phase I of the "Fengting Lounge", a self-owned lounge offering cultural experience and products. Furthermore, the renovation with interior design layout under the "Phoenix Dance in the Cloud" series was completed for 22 aircraft, and the passenger interfaces of the "Chinese Red" in-flight entertainment system on 17 aircraft were fully upgraded. In order to promote the consistent optimization and expansion of convenient services for passengers and optimize the functions and service experience of various self-service channels, Air China introduced an upgraded "Caring Version" on its official website to assist the elderly in travelling smoothly. The "ready to go anywhere at any time" product was also launched to enhance the timeliness for passengers travelling with our domestic express routes. Besides, Air China strived to promote digital transformation of services through the development of service systems, and the global platform for ground service and flight support services has been operating smoothly since its launch, which significantly strengthened the management and control of flight and ground services operation. Continuous efforts were made to optimize and improve the service quality management system, the whole-process luggage tracking data system and other service management data system so as to enhance the level of service digitalization on a continuous basis. It also continued to expand the air-railway interlink stations and network, which covered 63 transit cities, 98 transit train stations, 371 accessible train stations and connected with 582 railways across China, and contributed to the development of interline transportation and services integration.

MANAGEMENT DISCUSSION AND ANALYSIS ON FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

The following discussion and analysis are based on the Group's interim condensed consolidated financial statements and notes thereto which were prepared in accordance with the IAS 34 as well as the applicable disclosure requirements under Appendix 16 to the Listing Rules and are designed to assist the readers in further understanding the information provided in this announcement 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 RMB59,613 million, representing a year-on-year increase of RMB35,661 million or 148.88%. Among the revenues, air traffic revenue was RMB56,879 million, representing a year-on-year increase of RMB34,896 million or 158.74%. Other operating revenue was RMB2,734 million, representing a year-on-year increase of RMB764 million or 38.81%.

Revenue Contributed by Geographical Segments

Air Passenger Revenue

During the Reporting Period, the Group recorded an air passenger revenue of RMB55,470 million, representing a year-on-year increase of RMB40,366 million. Among the air passenger revenue, the increase of capacity resulted in an increase in revenue of RMB28,827 million, and the increase of passenger load factor resulted in an increase in revenue of RMB7,343 million, while the increase of passenger yield resulted in an increase in revenue of RMB4,196 million. The capacity, passenger load factor and yield per RPK of air passenger business during the Reporting Period are as follows:

Note: The operating data for the corresponding period in 2022 in the above table does not include the operating data of Shandong Airlines.

Air Passenger Revenue Contributed by Geographical Segments