Perspective PERSISTENCE - China Southern Airlines
China Southern Airlines Company 公司H Share Stock Code: 1055A Share Stock Code: 600029ADR Code: ZNH&Annual Report20182018 Annual ReportPerspectivePERSISTENCE南 方C SMobile AppWeChat App航N空
ABOUT USChina Southern Airlines Company Limited is an airline with the largestChina Southern Airlines has maintained the best safety record amongnumber of transport aircrafts, the most developed route network andChina’s airlines. During the reporting period, the Company wasthe largest annual passenger turnover in China. By the end of theawarded “Two-Star Diamond Award for Flight Safety”, the top awardreporting period, China Southern Airlines has operated a total of 840for flight safety from CAAC, and has been an airline with the highestpassenger and cargo transport aircrafts and served nearly 140 millionsafety star in China.passengers. It is ranked first in Asia and third in the world in terms offleet scale and passenger turnover.
CONTENTSABOUT US2Definitions4Important Information5Company Profile6Corporate Information8Company Business SummaryOPERATING RESULTS20 Principal Accounting Information andFinancial Indicators22Summary of Operating Data27Summary of Fleet Data30Highlights of the Year36Management Discussion and Analysis82SIGNIFICANT EVENTSCORPORATE GOVERNANCE91Report of Directors112 Changes in the Share Capital, Shareholders’Profile and Disclosure of Interests120 Directors, Supervisors, Senior Managementand Employees138Corporate Governance Report150CORPORATE BOND153 RISK MANAGEMENT AND INTERNALCONTROL156SOCIAL RESPONSIBILITYFINANCIAL REPORTFinancial Statements Prepared underInternational Financial Reporting Standards160Independent Auditor’s Report167Consolidated Income Statement168 Consolidated Statement of ComprehensiveIncome169Consolidated Statement of Financial Position171Consolidated Statement of Changes in Equity172Consolidated Cash Flow Statement173Notes to the Financial Statements273S UPPLEMENTARY FINANCIALINFORMATION276FIVE YEAR SUMMARY
ANNUAL REPORT 2018DEFINITIONSUnless the context otherwise requires, the following terms should have the following meanings in this report:Company, CSA, China Southern AirlinesChina Southern Airlines Company LimitedGroupChina Southern Airlines Company Limited and its subsidiariesCSAHChina Southern Air Holding Limited CompanyXiamen AirlinesXiamen Airlines Company LimitedGuizhou AirlinesGuizhou Airlines Company LimitedZhuhai AirlinesZhuhai Airlines Company LimitedShantou AirlinesShantou Airlines Company LimitedChongqing AirlinesChongqing Airlines Company LimitedHenan AirlinesChina Southern Airlines Henan Airlines Company LimitedXiongan AirlinesChina Southern Airlines Xiongan Airlines Company LimitedMTUMTU Maintenance Zhuhai Co., Ltd.SAGASouthern Airlines General Aviation Co., Ltd.Hebei AirlinesHebei Airlines Company LimitedJiangxi AirlinesJiangxi Airlines Company LimitedFinance CompanyChina Southern Airlines Group Finance Company LimitedFreight and Logistic CompanySouthern Airlines Freight and Logistic (Guangzhou) Co., Ltd.GSCChina Southern Airlines Group Ground Services Co., Ltd.CSAGPMCChina Southern Airlines Group Property Management Company LimitedNan LungNan Lung Holding LimitedSACCShenzhen Air Catering Co., Ltd.SACMSouthern Airlines Culture and Media Co., Ltd.SPVSpecial Purpose Vehicles exclusively set up by China Southern Airlinesand its subsidiaries for leased aircraftAmerican AirlinesAmerican Airlines, Inc.Sichuan AirlinesSichuan Airlines Corporation LimitedPRCThe People’s Republic of ChinaCSRCChina Securities Regulatory CommissionNDRCNational Development and Reform CommissionSASACState-owned Assets Supervision and Administration Commission of theState CouncilCAACGeneral Administration of Civil Aviation of ChinaSSEShanghai Stock ExchangeStock ExchangeThe Stock Exchange of Hong Kong LimitedArticles of AssociationArticles of Association of China Southern Airlines Company LimitedListing Rules of the Stock ExchangeThe Rules Governing the Listing of Securities on The Stock Exchange ofHong Kong LimitedModel CodeThe Model Code for Securities Transactions by Directors of ListedIssuers as set out in Appendix 10 to the Rules Governing the Listing ofSecurities on The Stock Exchange of Hong Kong Limited2
About UsChina Southern Airlines Company LimitedCorporate Governance CodeCorporate Governance Code as set out in Appendix 14 to the RulesGoverning the Listing of Securities on The Stock Exchange of HongKong LimitedSFOSecurities and Futures Ordinance (Chapter 571 of the laws of HongKong)Available Seat Kilometers or “ASK”the number of seats made available for sale multiplied by the kilometersflownAvailable Tonne Kilometers or “ATK”the tonnes of capacity available for the transportation multiplied by thekilometers flownAvailable Tonne Kilometers – passengerthe tonnes of capacity available for passenger multiplied by thekilometers flownAvailable Tonne Kilometers – cargothe tonnes of capacity available for cargo and mails multiplied by thekilometers flownRevenue Passenger Kilometers or “RPK”i.e. passengers traffic volume, the number of passengers carriedmultiplied by the kilometers flownRevenue Tonne Kilometers or “RTK”i.e. total traffic volume, the load (passengers and cargo) in tonnesmultiplied by the kilometers flownRevenue Tonne Kilometers – cargo or“RFTK”i.e. cargo and mail traffic volume, the load for cargo and mail in tonnesmultiplied by the kilometers flownRevenue Tonne Kilometers – passengerthe load for passenger in tonnes multiplied by the kilometers flownPassenger Load FactorRPK expressed as a percentage of ASKRevenue flight hoursFlighting hours of commercial flyingOverall Load FactorRTK expressed as a percentage of ATKYield per RPKrevenue from passenger operations divided by RPKYield per RFTKrevenue from cargo operations divided by RFTK3
ANNUAL REPORT 2018IMPORTANTINFORMATIONI.The board of directors (the “Board”) and the supervisory committee (the “Supervisory Committee”)of the Company and its directors (the “Directors”), supervisors (the “Supervisors”) and seniormanagement warrant the truthfulness, accuracy and completeness of the content containedin this annual report, and which does not contain inaccurate or misleading statements or haveany material omission, and jointly and severally accept full legal responsibility.II.This annual report was considered and approved at the sixth meeting of the eighth sessionof the Board of the Company on 29 March 2019. 6 Directors were required to attend themeeting and 5 of them attended in person. Director Zhang Zi Fang did not attend the meetingdue to business reasons, and authorized Director Wang Chang Shun to attend and vote onhis behalf.III.KPMG issued the independent auditor’s report with unqualified auditor opinion to theCompany.IV.The Board recommends the payment of a dividend of RMB0.05 (inclusive of applicable tax)per share to shareholders for the year ended 31 December 2018, totalling approximatelyRMB613 million based on the Company’s 12,267,172,286 issued shares, accounted for31% of the realized distributable profit of the Company for the year 2018 under PRC GAAP.A proposal for the dividend payment will be submitted at the 2018 annual general meetingof the Company for consideration. If approved, the dividend is expected to be paid to theshareholders by the Company on or before Saturday, 31 August 2019.V.Forward-looking statements included in this report, including future plans and developmentstrategies, do not constitute a guarantee of the Company to investors. Investors shall beaware of the risks of investment.VI.During the reporting period, neither the controlling shareholder of the Company, nor any of itsconnected persons has utilized the non-operating funds of the Company.VII.During the reporting period, the Company did not provide external guarantees in violation ofany specified decision-making procedures.VIII. During the reporting period, the Company did not have any material risks. The Company hasdetailed potential risks in this report. Please refer to “Risk Factors Analysis” under “ManagementDiscussion and Analysis”.4
CORPORATEPROFILEThe Company is one ofthe largest airlines inthe PRC.The Company is the largest airlinesin China with the largest numberof transport aircrafts, the mostdeveloped route network and thelargest annual passenger throughput.Its headquarters is located inGuangzhou. It has 16 branches inBeijing, Shenzhen, and other citiesand 8 holding aviation subsidiariesincluding Xiamen Airlines. TheCompany has set up SAGA in Zhuhai,and has set up domestic businessdepartments in 22 cities includingHangzhou, Qingdao, and 69 foreignbranch offices in Sydney, New Yorkand other places. By the end of 2018,the Company has operated a total of840 passenger and cargo transportaircrafts including Boeing 787, 777,747, 737 series, Airbus 380, 330, 320series. In 2018, the Company handlednearly 140 million passengers, rankingfirst among China’s airlines for 40consecutive years. It ranked first inAsia and third in the world both interms of fleet size and passengerthroughput. The Company maintainsthe best safety record among China’sairlines. In June 2018, the Companywon the highest flight safety award ofChina’s civil aviation industry – “TwoStar Diamond Award for Flight Safety”.The Company was the airlines with thehighest safety star ranking in China.At present, the Company providesmore than 3,000 flights to morethan 40 countries and regions, and224 destinations in more than 1,300routes with more than 300,000 seats.By working closely with partners,its routes extended to cover moredestinations around the world. Inrecent years, the Company hascontinuously opened new flight routesand add new flights as needed forsome flight routes, strengthenedtransfer function, made full use ofthe sixth freedom right to build theinternational aviation hub of “CantonRoute”. There are more than 50 flightpoints in Guangzhou for internationaland regional destinations. On themap of the world, the links betweenGuangzhou and such destinationsform two fan-shaped centers inEurope and Oceania, with SoutheastAsia, South Asia and East Asia ashinterland, and cover the route layoutin North America, Middle East andAfrica. It has become the first gatewayhub from mainland China to Oceaniaand Southeast Asia. The Companyactively responded to the nationalinitiative to provide strong supportfor the promotion of the constructionof “The Belt and Road Initiative". Inthe areas, such as South Asia,Southeast Asia, the SouthPacific, Western and CentralAsia, mainly covered alongthe routes of “The Belt andRoad Initiative", the Companyhas established perfect routenetworks. As to the numberof routes, the frequency offlights and the market share,the Company ranked firstamong domestic airlines.This makes the Companybecome the main force ofinterconnection betweenChina and the countriesand regions.5About UsChina Southern Airlines Company Limited
ANNUAL REPORT 2018CORPORATEINFORMATIONChinese Name:WeChat Official Account:中國南方航空股份有限公司China Southern AirlinesChinese Short Name:Sina Weibo:南方航空http://weibo.com/csairEnglish Name:Place of Business:China Southern Airlines Company LimitedChina Southern Air Building, 68 Qixin Road, Baiyun District,Guangzhou, Guangdong Province, PRCEnglish Short Name:Place of Business in Hong Kong:CSNUnit B1, 9th Floor, United Centre,95 Queensway, Hong KongLegal Representative:Wang Chang ShunWebsite of the Company:www.csair.comBoard and Company Secretary:Xie BingAuthorized Representative under the Listing Rules ofthe Stock Exchange:Securities Affairs Representative:Tan Wan Geng (retired on 30 November 2018)Xie BingZhang Zi Fang (appointed on 30 November 2018)Xu YangShareholder Enquiry:Company Secretary BureauControlling Shareholder:China Southern Air Holding Limited CompanyTelephone: 86-20-86112480Principal Bankers:China Development BankAgricultural Bank of ChinaBank of ChinaIndustrial & Commercial Bank of ChinaChina Construction BankFax: 86-20-86659040E-mail:ir@csair.comDesignated Newspapers for Information Disclosure(A Shares):Address:China Securities Journal, Shanghai Securities News,Securities TimesChina Southern Air Building, 68 Qixin Road, Baiyun District,Guangzhou, Guangdong Province, PRCDesignated Website for Information Disclosure(A Shares):Registered Address:Unit 301, 3/F, Office Tower Guanhao Science ParkPhase I, 12 Yuyan Street, Huangpu District, Guangzhou,Guangdong Province, PRCwww.sse.com.cnAPP:China Southern Airlines6
About UsChina Southern Airlines Company LimitedDesignated Website for Information Disclosure(H Shares):Place of Listing of N Shares:The New York Stock Exchangewww.hkexnews.hkShort Name of N Shares:Annual Report Available for Inspection:China Southern AirCompany Secretary BureauStock Code of N Shares:WeChat QR Code:ZNHN Share Registrar:BNY Mellon Shareowner ServicesP.O.Box 505000Louisville, KY40233-5000, USADomestic Legal Adviser:Z&T Law FirmPlace of Listing of A Shares:Overseas Legal Adviser:Shanghai Stock ExchangeDLA Piper Hong KongShort Name of A Shares:Domestic Auditors:南方航空KPMG Huazhen LLPStock Code of A Shares:Address of Domestic Auditor:6000298th Floor, KPMG Tower Oriental Plaza,1 East Chang An Avenue,Beijing, ChinaA Share Registrar:China Securities Depository and Clearing CorporationLimited Shanghai BranchFloor 36, China Insurance Building,166 Lu Jia Zui East Road, Shanghai, PRCSigning Accountants of Domestic Auditor:Wang Jie, Guo Wen MinOverseas Auditor:Place of Listing of H Shares:KPMGThe Stock ExchangeAddress of Overseas Auditor:Short Name of H Shares:8th Floor, Prince’s Building,10 Chater RoadCentral, Hong KongChina South AirStock Code of H Shares:01055H Share Registrar:Hong Kong Registrars Limited17M Floor, Hopewell Centre, 183 Queen’s Road East,Hong Kong7
ANNUAL REPORT 2018COMPANY BUSINESSSUMMARYI. The Principal Business andOperating Model of the Companyand the Industry Summary duringthe Reporting Period(I) Principal BusinessThe scope of business of the Company includes:(1) provision of services of domestic, regional andinternational scheduled and unscheduled air transportationof passenger, cargo, mail and baggage; (2) provision ofservices of general aviation; (3) provision of services ofaircraft maintenance; (4) acting as an agency of domesticand foreign airlines; (5) offering airlines catering services(operated by branch office only); (6) conducting otheraviation and relevant businesses, including advertising forsuch businesses; (7) conducting other aviation businessand related business, limited to insurance and agencybusiness: personal accident insurance; provision ofairlines ground services; civil aircraft training (operatedby branch office only according to license); asset leasingservices; project management and technical consultancyservices; sales of aviation equipment; travel agencybusiness; merchandise retail and wholesale (for allprojects being subject to approval in accordance with thelaws, the business activities can only be carried out afterapproval by relevant authorities in accordance with thelaws).(II) Profit Model, Operating Characteristicsand Development StrategiesThe Company has established a strategic framework:In specific, we strive for a strategic goal of “three firstclass”: first-class safety quality, first-class profitability,and first-class brand image, a strategic layout of buildingGuangzhou-Beijing “dual hubs”, and a strategic directionof “standardization, integration, intelligentization andinternationalization”. Our governance system consistsof five parts, namely party leadership, governancestructure, strategic management, market mechanism, andcorporate culture. The capability in operation assurance8
About UsChina Southern Airlines Company Limitedis a safeguard to enhance “conditions,resources, and environment”.In order to optimize the managementand control mode and improve theefficiency of resource allocation, theCompany put forward an integratedoperation program focusing on theoptimization of the function of theheadquarters and branches to achievehigh-efficient coordination as a way toclarify rights and liabilities, mobilize theenthusiasm, and focus on quality andefficiency enhancement. We will buildan integrated operation system withcentralized management and control,efficient decision-making, smoothcommunication, and coordinatedsystem. We will coordinate actionsunder unified deployment to enhancesynergy, and further consolidate thefoundation of safety management9to comprehensively improve thedevelopment quality and efficiency ofthe Company.By the end of the “13th Five-yearPlan” period, the Group will developinto a large international airlineswith an annual passenger volume ofapproximately 160 million and cargoand mail volume of more than 2million tonnes.
ANNUAL REPORT 2018COMPANY BUSINESSSUMMARYThe Total Traffic Volume ofChina’s Civil AviationRANKED SECOND INTHE WORLD FOR 14CONSECUTIVE YEARS(III) Development of CivilAviation Industry andIndustrial Position of theCompany1.Information of Developmentof International and DomesticCivil Aviation Industry(1)Development of InternationalCivil Aviation IndustryThe growth of passenger transportvolume slowed down. According tothe preliminary data released by theInternational Civil Aviation Organization(ICAO), in 2018, global airlinestransported 4.3 billion passengers, upby 6.5% over 2017; the passengerstraffic volume (RPK) reached 8,200billion, increased by 6.7% on a yearon year basis, lower than the growthrate of 7.9% in 2017. In 2018, theinternational scheduled passengertransport volume (RPK) increased by106.4% year-on-year, lower than thegrowth rate of 8.4% in 2017. Amongthem, Asia Pacific region recordedthe fastest growth rate of 7.3% yearon year, followed by the growth rateof each of European region andNorth America region of 6.7% and5.2%, respectively. Middle East regionwitnessed the lowest growth rate of4.7%.The passenger load factor hit anew record high. In 2018, the totalcapacity (ASK) offered by the globalairlines increased by approximately6.0%, with the passenger load factorup by 0.6 percentage point to 81.9%,hitting an all-time high. Due to theslowdown in passenger growth,the passenger load factors in LatinAmerica and the Caribbean regionand Africa region have declined. Inaddition, the passenger load factorvaried from region to region, such
About UsChina Southern Airlines Company Limitedas 71.8% in Africa and 84.5% inEuropean region.Low-cost carriers (LCCs) were active.The growth rate of LCCs has beenfaster than the world average, andtheir market share in developedmarkets and emerging economieshas continued to grow. In 2018,the passenger volume of LCCswas expected to reach 1.3 billion,accounting for approximately 31% ofthe total number of scheduled airlinespassengers worldwide. LCCs hadtheir highest market share in Europe,accounting for 36%, followed by LatinAmerica and the Caribbean region,North America and Asia Pacific region,accounting for 35%, 30% and 29%,respectively.Rising fuel costs affected the profitsof airlines. For global airlines, the yearof 2018 was full of pressure, with thebiggest pressure from fuel prices,followed by economic and geopoliticalheadwinds. The average fuel prices in2018 increased by about 31% yearon-year, and the profits of airlinesaround the world were affected tovarying degrees.(2)Development of China CivilAviation IndustryAccording to the data released byCAAC:Flight safety. In 2018, China’s aviationtransport achieved safe flight of 11.53million hours, an increase of 8.9%year-on-year, and the incident signrate per 10,000 hours was down8.3% year-on-year. The air transportachieved a new safety record incontinuous safety flight of 100months and 68.36 million hours, andsecured aviation safety without liabilityaccidents for16 years and 8 months.11Operation service. In 2018, in light oftight airspace resources, complicatedoperating environment and frequentextreme weather, the flight on-timeperformance rate in the whole industryreached
2 ANNUAL EPORT 2018 DEFINITIONS Unless the context otherwise requires, the following terms should have the following meanings in this report: Company, CSA, China Southern Airlines China Southern Airlines Company Limited Group China Southern Airlines Company Limited and its subsidiaries CSAH China Southern Air Holding Limite
Unless the context otherwise requires, the following terms should have the following meanings in this report: Company, CSA, China Southern Airlines China Southern Airlines Company Limited Group China Southern Airlines Company Limited and its subsidiaries CSAH China Southern Air Holding Limited Company Xiamen Airlines Xiamen Airlines Company Limited Guizhou Airlines Guizhou Airlines Company Limited
DEFINITIONS Definitions Unless the context otherwise requires, the following terms should have the following meanings in this report: Company, CSA, China Southern Airlines China Southern Airlines Company Limited Group China Southern Airlines Company Limited and its subsidiaries CSAH China Southern Air Hold
6 INTERI EPOR 2019 DEFINITIONS SACM Southern Airlines Culture and Media Co., Ltd. SPV Special Purpose Vehicles exclusively set up by China Southern Airlines and its subsidiaries for leased aircraft American Airlines American Airlines, Inc. Sichuan Airlines Sichuan Airlines Corporation Limited PRC The People’s Republic of China CSRC China Securities Regulatory Commission
China Postal Airlines CAR 27 0 China Southern Air FSC 544 167 Chongqing Airlines FSC 19 7 Hebei Airlines REG 22 32. Jiangxi Air LCC 7 0. Sichuan Airlines FSC 130 33 Xiamen Airlines FSC 163 64. China Eastern Air Holding Company Long Short In Service On Order. China Cargo Air CAR 9 0 China Eastern Ai
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