Air China (“ACN”) is a Chinese airline that transports over 89 million domestic and 20 million international passengers to over 180 destinations a year. Most of its passenger services are provided under the Air China brand. ACN also owns an air freight business, various ground handling services, an online travel agency and a number of shareholdings in other airlines and associated businesses.
ACN leases, owns and operates more than 670 long-haul and short-haul aircraft and it also code-shares aircraft with other airlines including others in the Star Alliance. Together it transports over 89 million domestic and 20 million international passengers to over 180 rural, urban and international destinations a year. ACN markets and sells airfares at varying prices, at different times of the day and with a variety of service options including different seat classes, direct or stopover flights, flexible or unchangeable tickets and restricted or unrestricted baggage allowances. Its tickets are sold directly and via third-party travel agencies and online booking platforms under the Air China (www.airchina.com.cn) brand. As with all airlines, ACN’s key operating costs include: aviation fuel, which is typically purchased on-site at the different airports and is often hedged against currency and price changes; airport landing charges as well as various other parking, cleaning, catering and associated ground-crew services that are often regulated by national authorities; airplane operations, maintenance and servicing; and sales and marketing costs that use a variety of direct and third-party channels to market.
ACN also owns: interests in a number of other domestic and international airlines including 30% of Cathay Pacific Airways, 51% of Shenzhen Airlines, 67% of Air Macau, 51% of Beijing Airlines, 80% of Dalian Airlines, 80% of Air China Inner Mongolia, 44% of Shandong Airlines and 31% Tibet Airlines; 100% of an online travel agency called Air China Airlines Holidays (holiday.airchina.com.cn) that markets and sells hotels, rental cars, tours and holiday packages; interests in ground handling services business including 21% of Guangzhou Baiyun International Airport Ground Handling Service Company, 41% of Menzies Macau Airport Services Company and 24% of Shanghai International Airport Service Company; interests in a number of aircraft maintenance companies including 75% of the Aircraft Maintenance & Engineering Corporation, 60% of Chengdu Falcon and 40% of Yunnan Airport Aircraft Maintenance Services Company; and 100% a Chinese aircraft importing and exporting business called Air China Import & Export Trading Corporate.
Airlines are often characterised as capital intensive and volatile because of the cost involved in buying and maintaining aeroplanes and the uncertainty in demand, exchange rates and fuel prices. Companies try to maximise their average revenue per ‘available seat kilometre’ by raising ticket prices and enticing customers to upgrade their services, minimise their average ex-fuel cost per ‘available seat kilometre’ by increasing their utilisation and lowering the average cost-to-serve, and minimise their average fuel cost per ‘available seat kilometre’ by reducing fuel consumption and hedging their exposure to international fuel price volatility. Specifically, ACN has indicated its near-term focus is to: expand its domestic and international presence through new routes and a greater brand awareness; and improve its operational efficiency by acquiring more advanced, fuel-efficient aircraft .
ACN competes with alternative forms of private and public transportation as well as other domestic and international airlines that are also trying to attract passengers through various pricing, quality and other customer propositions. Its largest domestic competitors are China Southern Airlines, China Eastern Airlines, Hainan Airlines and China Railway and some of its larger international competitors are Qantas Airways of Australia, Air New Zealand of New Zealand and Singapore Airways of Singapore.
ACN has established a diversified and multinational business with a strong domestic brand. It also has operations in different countries, giving it some ability to allocate more of its resources to countries with favourable demand drivers and exchange rates, and vice-versa. Going forward, it should continue to benefit from increased passenger numbers and economies of scale through organic growth as well as more international routes and alliances with other airlines. Its downside commercial risks could include: a broader domestic or international economic slowdown that could affect the propensity of customers to purchase discretionary air travel; erosion of market share and gross margins from new market entrants and multinational competitors with large economies of scale; a depreciation of the HKD, which could increase the unhedged cost of fuel and other third-party services (conversely, it may also make China a less expensive travel destination for some international passengers); an appreciation of international oil and jet fuel prices, which could lower passenger demand should they are passed on passengers through higher ticket prices; greater international or domestic aviation restrictions and regulations that may increase its compliance costs or prevent it from operating in some markets; the development and widespread adoption of alternative transportation methods, such as driverless vehicles and high-speed railway, which may result in some domestic passengers opting to drive vehicle or take train between short-haul regional locations; a material disruption to its services or to the routes it flies, which may result from significant weather related events, natural disasters or civil unrest; or the inheritance of undue liabilities or commercial risks through other mergers and acquisitions or its entrance into new countries and travel routes.
2010: The General Administration of Civil Aviation of China (later renamed the Civil Aviation Administration of China) was established as a state-owned enterprise in 1949 to regulate, market and provide domestic air passenger and air freight services in China. It commenced its first international flights to other countries within the communist bloc in 1962, which it expanded globally in 1987 shortly before it was separated into six regional airlines - Air China International Corporation (“ACN”), China Southwest Airlines, China Eastern Airlines, China Northwest Airlines, China Southern Airlines and China Northern Airlines.
ACN was at the time operated by the Civil Aviation Administration of China, Beijing Branch. It established a partially-owned aircraft maintenance company called the Aircraft Maintenance & Engineering Corporation in 1989, but it was not until 1991, after formally separating from the Civil Aviation Administration, that it began to expand and diversify more rapidly: it acquired a minority interest in a regional airline called Shenzhen Airlines in 1992; it established an aircraft importing and exporting company called the Air China Import & Export Trading Corporate in 1993; and it established two partly owned aircraft maintenance companies called Chengdu Falcon in 2001 and Yunnan Airport Aircraft Maintenance Services Company in 2003.
ACN undertook three significant corporate transactions between 2003 and 2004: firstly merging with the China National Aviation Corporation and China Southwest Airlines to form the China National Aviation Holding Company; secondly, acquiring 69% of Hong Kong listed China National Aviation Corporation, which itself partly owned two regional airlines called Dragonair and Air Macau, two domestic ground service companies called Jardine Airport Services and Menzies Macau Airport Services Company, two domestic air catering companies called Beijing Air Catering Company and Southwest Air Catering Company, a German air catering business called LSG Sky Chefs and a regional cargo operator called Tradeport Hong Kong; and thirdly, listing on the Hong Kong Stock Exchange (0753.HK) and London Stock Exchange as Air China. During and shortly after these transactions, ACN also: acquired and rebranded three regional airlines called Zhejiang Airlines, China Southwest Airlines and Shandong Airlines; established partly owned air cargo business called Air China Cargo; established another domestic aircraft maintenance business called Air China Technics; and acquired a domestic ground service company called the Guangzhou Baiyun International Airport Ground Handling Service Company.
ACN began to focus less on new acquisitions and more on optimising its new corporate portfolio. By 2010 it had: joined the international airline code-sharing alliance called Star Alliance acquired; acquired 30% of Cathay Pacific Airways of Hong Kong; established three other regional airlines called Dalian Airlines, Beijing Airlines and Macau Asia Express (which it later closed); and sold its interests in Dragonair, Beijing Air Catering Company, Southwest Air Catering Company, LSG Sky Chefs, Tradeport Hong Kong and Jardine Airport Services; and
2012: ACN established a new regional airline called Air China Inner Mongolia and acquired a minority shareholding in Tibet Airlines. It also formed a new ground handling services company called the Shanghai International Airport Services Company
2015: ACN merged its Air China Technics operations into its Aircraft Maintenance & Engineering Corporation
2018: ACN chose to divest its interests in China Air Cargo
2020: The global Covid-19 pandemic forced major nations to temporarily close their borders and restrict people’s movements. This caused major disruptions to all airlines, including ACN, who in turn lowered its capacity and number of domestic and international flights
ACN was first listed on the Hong Kong Stock Exchange on 15 December 2004. It had 14.5 billion shares on issue at the end of the 2018 financial year, 52% of which were owned by the China National Aviation Holding Company, 18% by Cathay Pacific Airways and the rest by a mix of approximately 165,600 retail and institutional investors.
The ACN Board collectively owned less than 0.1 million shares at the end of last year. The Board currently comprises:
Zhiyong Song has been the President of ACN since January 2014 and a Non-Independent Director since May 2014. Zhiyong comes from an aviation background and was previously the Vice President of ACN. He is also the General Manager and a Director of the China National Aviation Holding Company.
Unless otherwise stated, all numbers are based on those reported at the end of the prior financial year.
ACN’s historic Annual Reports, Presentations, Prospectuses and Other Announcements can be viewed below or they can be sourced from its website (www.airchina.com.cn) or the Hong Kong Stock Exchange (www.hkex.com.hk)
0753.HK Annual Report 2020 | 2111.HK Annual Report 2020 | 0753.HK Annual Report 2019 | 0753.HK Annual Report 2018 | 0753.HK Annual Report 2017 | 0753.HK Annual Report 2016 | 0753.HK Annual Report 2015 | 0753.HK Annual Report 2014 | 0753.HK Annual Report 2013 | 0753.HK Annual Report 2012 | 0753.HK Annual Report 2011 | 0753.HK Annual Report 2010 | 0753.HK Annual Report 2009 | 0753.HK Annual Report 2008 | 0753.HK Annual Report 2007 | 0753.HK Annual Report 2006 | 0753.HK Annual Report 2005 | 0753.HK Annual Report 2004 | 0753.HK Prospectus 2004
 Refer to pages 26-27 of the ACN Annual Report 2018