China airline

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China airline

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  2. 2. CONTENTS Financial Highlights Preface by Chairman and President The Members of the Board Business Operations of 2012 and Perspectives of 2013 Enhancement of Flight Operation and Maintenance The Trend for Environmental Protection Financial Status Contents Financial and Operating Analysis 2012 Financial Report China Airlines | Annual Report 2012 | 1 3 5 7 25 29 35 36 40 Go Top
  3. 3. 1 www.china-airlines.com China Airlines | Annual Report 2012 | 2 Go Top | Financial Highlights | China Airlines | Annual Report 2012 | Financial Statistics Unit 2012 2011 %Change Operating Revenue (Million TWD) 132,609 132,240 0.3% Passenger Revenue (Million TWD) 86,621 80,825 7.2% Cargo Revenue (Million TWD) 40,809 46,388 -12.0% Other Revenue (Million TWD) 5,179 5,027 3.0% Operating Expenses (Million TWD) 132,266 133,805 -1.2% Operating Profit (Million TWD) 343 -1,565 121.9% Income after Tax (Million TWD) 59 -1,954 103.0% Operating Margin (%) 0.3 -1.2 1.44 ppt Net Margin (%) 0.04 -1.5 1.52 ppt Balance Sheet Assets (Million TWD) 190,325 202,690 -6.1% Liabilities (Million TWD) 138,184 155,631 -11.2% Stockholders’ Equity (Million TWD) 52,141 47,059 10.8% Liabilities/ Assets (%) 72.6 76.8 -4.2 ppt Return on Assets (ROA) (%) 0.94 -0.04 0.98 ppt Return on Equity (ROE) (%) 0.12 -4.08 4.20 ppt Book Value per Share (TWD) 10.03 10.16 -1.3% Employee Productivity Unit 2012 2011 %Change Revenue per Employee (1,000TWD/Person) 12,401 12,570 -1.3% Capacity per Employee (ATK/Person) 991,206 1,116,510 -11.2% Traffic per Employee (RTK/Person) 728,086 811,058 -10.2% Operating Statistics Unit 2012 2011 %Change Passengers Carried (1,000) 12,106 11,421 6.0% Passenger Capacity (Million ASK) 42,511 40,773 4.3% Passenger Traffic (Million RPK) 32,864 31,798 3.4% Passenger Load Factor (%) 77.3 78.0 -0.7 ppt Passenger Yield (TWD/RPK) 2.64 2.54 3.9% Cargo Carried (1,000 kg) 634,642 668,498 -5.1% Cargo Capacity (Million FATK) 6,772 8,076 -16.1% Cargo Traffic (Million FRTK) 4,828 5,670 -14.9% Cargo Load Factor (%) 71.3 70.2 1.1 ppt Cargo Yield (TWD/FRTK) 8.45 8.18 3.3% Overall Capacity (Million ATK) 10,599 11,746 -9.8% Overall Traffic (Million RTK) 7,785 8,532 -8.8% Overall Yield (TWD/RTK) 17.03 15.50 9.9% Unit Cost (TWD/ATK) 12.48 11.39 9.5% Break Even Load Factor (%) 73.3 73.5 -0.2 ppt RPK Revenue Passenger Kilometer Number of revenue passengers carried multiplied by distance flown ASK Available Seat Kilometer Number of seats available for sale multiplied by distance flown Passenger Load Factor Revenue Passenger Kilometer divided by Available Seat Kilometer FRTK Freight Revenue Tonne Kilometer Number of revenue tonnes of freight carrier multiplied by distance flown FATK Freight Available Tonne Kilometer Number of tonnes of capacity available to carry freight multiplied by distance flown Cargo Load Factor Freight Revenue Tonne Kilometer divided by Freight Available Tonne Kilometer RTK Revenue Tonne Kilometer Revenue load (passengers and freight) in tonnes multiplied by distance flown ATK Available Tonne Kilometer Number of tonnes of capacity available to carry revenue load (passengers and freight) multiplied by distance flown
  4. 4. 3 www.china-airlines.com China Airlines | Annual Report 2012 | 4 Go Top | Preface by Chairman and President | In 2012, the traditional carrier industry continued to be impacted by the unstable economy worldwide, the fluctuation of international fuel prices, and the expansion of regional Low Cost Carriers (LCC). Against these challenges inherent in the environment and from our competitive rivals, China Airlines (CAL) excelled in creating unique new values through a comprehensive, multi-faceted planning and development effort. We continued to review and update our company’s fleet modernization plan. Fourteen Airbus A350-900 purchased earlier will be delivered beginning in 2016 for use on our long-haul, medium-capacity routes. Also from 2014, CAL will gradually introduce the new Boeing 777-300ER aircraft to replace the older ones used on our long-haul routes to Europe and the Americas. These will increase the competitiveness of our flight products and reduce the impact of high fuel prices. Additionally, to accommodate the growing demand in the Asia-Pacific region, CAL will add three Boeing 737-800 and one Airbus A330-300 aircraft in 2013. We monitor closely the regional market and business climate, and will dynamically supplement the medium to short range route capacity as needed. All new aircraft in our fleet will feature designer cabins with modernized seats and entertainment systems to offer the passengers a more comfortable flight. CAL’s long-term goal is to have up to one hundred aircraft by 2020. With the recent development of government policies, there exist new opportunities in the aviation industry. Policies such as the establishment of Taoyuan Aerotropolis, the designation of Taipei Songshan Airport as the “domestic hub and capital business airport,” Taiwan-US Visa Waiver Program, and Taiwan-Japan Open Skies Agreement, etc., are all favorable advances as are the growing popularity of direct cross-strait links and free, independent travel for mainland tourists. Taking advantage of the new Taiwan- Japan air rights and the recovery of the Japanese markets, we added new destinations in Kagoshima, Shizuoka, and Toyama, and increased frequencies to Tokyo, Osaka, Fukuoka, and Nagoya. Our new service to Gimpo, Korea rounded out CAL’s complete flight network in Northeast Asia. In terms of long haul routes, with the increasing frequency of traveling among Taiwan, New Zealand, and Australia, we extended Auckland route for daily flights through Sydney. As for the long-cultivated US market, CAL will reinstate nonstop flights between Taipei and Hawaii in June, 2013 in anticipation of the Taiwan-US Visa Waiver Program. We will continue to code-share with other SkyTeam airlines to provide passengers with ample choices for transfer flights connecting to cities in U.S. It is worth noted that CAL, in coordination with the SkyTeam alliance, has successfully implemented the “SkyPriority” services on all CAL routes and destinations. SkyPriority provides exclusive, priority services to premium cabin passengers and SkyTeam elite flyers, and is consistently offered across all alliance member airlines. CAL also officially joined SkyTeam Cargo and became the first Taiwan-based airline to join an international freight alliance. This not only strengthens the SkyTeam’s freight operations in Asia but also promotes Taiwan’s position as the Asian transshipment center.In the future, we can offer customers and cargo owners better products and services through the seamless operations facilitated by the SkyTeam alliance. One of CAL’s operating principles is to work with business partners to create values together. In early 2013, we launched the “Greater China Connection” program with three other SkyTeam members in the region: China Eastern Airlines, China Southern Airlines, and Xiamen Airlines. This partnership provides additional benefits to our frequent flyer members, strengthens the cooperation between partner airlines, and solidifies our competitive advantages in cross-strait routes. Through a Memorandum of Understanding (MOU), we also teamed up with Chunghwa Telecom to research and to develop communication techniques applicable to the tourism and travel services market to further promote efficiency and qualities of services. Our efforts have paid off in many areas such as online ticket purchase, seat assignment, online check-in and mobile boarding passes, as well as airport kiosks. These services enable passengers to manage itineraries with ease, promote the efficiency of airport services, and reduce the amount of paper used. In the future, we will continue to work with our partners to create a green travel environment. An enterprise of happiness that creates values and sails to the future Environmental management is a critical focus of CAL. On account of global sustainability, we strive to be a safer and a more environment-friendly new generation enterprise that provides the best transportation services. Last year, we prepared our in-flight meals using mostly local ingredients to reduce the carbon dioxide generated through the transportation process. We worked with noted firms to produce vegetarian meals to provide passengers with alternatives that are healthy and environmentally worthy. Some meals are also labeled with their corresponding carbon footprints to promote passengers’ eco awareness. We are an active participant of the Pacific Greenhouse Gases Measurement (PGGM) project, which collects air samples in the upper atmosphere for global academic research. Lastly, CAL signed a five-year OnPoint Fuel and Carbon Solution Agreement with General Electric (GE), with the goal of reducing 2 to 3% fuel consumption to minimize global warming. In terms of management, we completed a corporate reorganization in May, 2012, by adjusting and rationalizing the positions within and amongst the various departments without increasing personnel counts and work load. We firmly believe that human resource is the most important asset of the company, and therefore we continuously invest in the training and mentoring of all staff. We not only task experienced managers and colleagues with important assignments but also emphasize training of the younger talents. Through inter-departmental job rotation and dispatch, the younger personnel can gain experiences for succession and advancement. CAL has outstanding employees, and we intend to offer them a stable and good working environment in our pursuit of continuously growing the business. We are grateful to our colleagues, passengers, shareholders, and alliance partners for their support and encouragement in this past year. Looking ahead, there are still difficulties posed by economic uncertainty and high fuel prices, as well as the ever present competitors. Nevertheless, we are confident that we are ready for all challenges. We will be steady when faced with obstacles, grow and expand when opportunities arise, and perform our best to meet the expectations of our colleagues, passengers, shareholders, and alliance partners. We hope to create a wholesome enterprise of happiness for our employees and spread that happiness to every passenger, shareholder, alliance partner, as well as everyone in the society. We believe we can outperform our rivals and achieve new highs in operations in 2013!
  5. 5. 5 www.china-airlines.com China Airlines | Annual Report 2012 | | The Members of the Board | • Chang, Chia-Juch / Former Chairman Resigned : February 18, 2013 • Wei, Hsing-Hsiung / Former director Resigned : June 15, 2012 • Lee, Shen-Yi / Former director Resigned : June 15, 2012 • Lo, Ta-Hsin / Former director Resigned : June 15, 2012 • Lin, Huan / Former Corporate Supervisor Resigned : June 15, 2012 • Lin, Su-Ming / Former Corporate Supervisor Resigned : June 15, 2012 • Chung,Lo-Min / Independent Director On board : June 15, 2012 • Liu,Shao-Liang / Independent Director On board : June 15, 2012 • Luo,Hsiao-Hsien / Independent Director On board : June 15, 2012 • Lin,Su-Ming / Director On board : June 15, 2012 • Huang,Hsiu-Gu / Director On board : June 15, 2012 Chairman Sun, Huang-Hsiang • Chairman, China Airlines Ltd. • President, China Airlines Ltd. • Managing Director, Taoyuan International Airport Services Co., Ltd. • Director, Mandarin Airlines, Ltd. • Director, CAL-Dynasty International, Inc. • Chairman, CAL Park Co., Ltd. • Chairman, CAL Hotel Co., Ltd. • Chairman, CAL-Asia Investment Inc. • Chairman, Dynasty Properties Co., Ltd. A Director Ting, Kwang-Hung • Standing Supervisor, Corporate Governance Committee, China Airlines Ltd. • Chairman, Central Trading & Development Corp. • Chairman, Phu My Hung Corp. • Chairman, Hiep Phuoc Power Co., Ltd. • Chairman, Macro Technologies Inc. (Vietnam) Ltd. G Director Lee, Cho-Ping • Member of the Financial Risk Committee, China Airlines Ltd. • Member of the Safety Committee, China Airlines Ltd. • President, China Airlines Employee Union • President, Federation of Aviation Employees, ROC • Vice President, Chinese Federation of Labor • Member of the Labor Standards Advisory Committee, Council of Labor Affairs Executive Yuan • Member of the Labor Pension Fund Supervisory Committee, Council of Labor Affairs Executive Yuan • President, Air Transport Workers Industrial Unions • Municipal Advisory, Taipei City Government H Director Lin, Su-Ming • Member of the Corporate Governance Committee, China Airlines Ltd. • Member of the Financial Risk Committee, China Airlines Ltd. • Director, Commerce Development Research Institute • Public Director, GreTai Securities Market • Professor, Department & Graduate Institute of Accounting National Taiwan University L Director Ko, Tso-Liang • Member of the Corporate Governance Committee, China Airlines Ltd. • Member of the Financial Risk Committee, China Airlines Ltd. • Secretary General, China Airlines Employee Welfare Committee • Standing Director, China Airlines Employee Union • Standing Supervisor, Federation of Aviation Employees, ROC I Independent Director Chung, Lo-Min • Standing Supervisor, Audit Committee, China Airlines Ltd. • Member of the Financial Risk Committee, China Airlines Ltd. • Member of the Remuneration Committee, China Airlines Ltd. • Chairman, China Steel Chemical Corporation • Chairman, Universal eXchange Inc. K Director Sung, Hong-Lei • Member of the Safety Committee, China Airlines Ltd. • Corporate Supervisor, The Grand Hotel JDirector Charles C.Y.Chen • Member of the Financial Risk Committee, China Airlines Ltd. • Chairman, Eyon Holding Group • Vice Chairman, Taiwan Air Cargo Terminal Ltd. • Vice Chairman, Taian Insurance Co., Ltd. • Board Member, Epistar Corporation • Board Director, Formosa International Hotels Corporation • Board Director, Ascendas Pte. Ltd. • President, Chen-Yung Foundation B Director Lai, Ching-Chyi • Standing Supervisor, Financial Risk Committee, China Airlines Ltd. • Chairman, Taiwan Insurance Institute • Chairman, The Insurance Anti-Fraud Institute of the ROC • Director, Taiwan Financial Services Roundtable C Independent Director Liu, Shao-Liang • Standing Supervisor, Remuneration Committee, China Airlines Ltd. • Member of the Audit Committee, China Airlines Ltd. • Member of the Corporate Governance Committee, China Airlines Ltd. • Chairman, China Venture Management Inc. • Director, Taiwan Stock Exchange Corporation • Executive Vice President, China Development Financial Holdings • Chairman, CDIB CME Fund Ltd. D Director Huang, Hsiu-Gu • Member of the Safety Committee, China Airlines Ltd. • President, Chunghwa Telecom Co., Ltd. Enterprise Business Group • Director, Intelligent Transportation Society of TAIWAN • Executive Director, Taiwan Energy Service Association • Director, Taipei Computer Association F Independent Director Luo, Hsiao-Hsien • Standing Supervisor, Safety Committee, China Airlines Ltd. • Member of the Audit Committee, China Airlines Ltd. • Associate Professor and Director of General Affairs, Tamkang University, Department of Transportation Management and Institute of Transportation Science • President, Taipei Society for Traffic Safety • Managing Director, Taipei Rapid Transit Corporation • Board Member, EasyCard Investment Holdings Corporation and EasyCard Corporation E F E D C B A G H I J K L 6 Go Top
  6. 6. 7 www.china-airlines.com China Airlines | Annual Report 2012 | 8 Go Top | Business Operations of 2012 and Perspectives of 2013 | Steadily Introducing Passenger Aircraft to Strengthen Competitive Advantages As of the end of 2012, the fleet of China Airlines consisted of 72 aircraft, including 51 passenger aircraft and 21 freighters with an average age of 9.6 years fleet- wide. Notable changes include the return of one B747 freighter to our fleet in August due to expiration of the lease to Yangtzu River Express Airlines Co., Ltd. We also took delivery of three new leased A330-300 planes in January, October, and December, respectively, and returned one leased A330-300 plane in October and an- other in November at the end of their respective lease terms. Aircraft Number Boeing B747-400 passenger and cargo aircraft 13 / 21 Airbus A340-300 passenger aircraft 6 Airbus A330-300 passenger aircraft 22 Boeing B737-800 passenger aircraft 10 Total 72 Pursuing Excellence by Assembling an Optimal Fleet CAL will introduce ten Boeing 777-300ER passenger aircraft beginning in 2014. We have also purchased 14 Airbus A350-900 planes, which will enter services beginning in 2016. These additions will strengthen our fleet and increase our competitiveness. Further, in response to direct cross-strait links and the expansion of Taiwan-Japan routes, CAL will introduce three B737- 800 and one A330-300 planes in 2013 to supplement the operations for short and medium range routes. To pursue excellent passenger services, CAL invested a hundred million US dollars to renovate the cabin seats and entertainment systems on nine B747- 400 passenger aircraft in 2012. Among them, three have a three-class cabin with first-class turndown services, a first in Taiwan aviation industry. Capturing New Business Opportunities and Creating a Comprehensive Route Network Taking advantages of the opportunities created by the Taiwan-Japan Open Skies Agreement, CAL added new Taipei-Kagoshima, Taipei-Shizuoka, and Tapei- Toyama routes, increased flight frequencies to existing destinations such as Tokyo, Osaka, Fukuoka, and Nagoya, and formally offered the Kaohsiung-Osaka route as a scheduled service. CAL also launched flights from Songshan to Gimpo, Korea to round up the complete flight network in Northeast Asia. For the cross-strait routes, CAL worked with Mandarin Airlines to initiate the Songshan-Wenzhou service. This is our second cross- strait route from the Taipei Songshan Airport after the initial Songshan-Hongqiao service. As for the long haul routes, in view of increasing travel among Taiwan, New Zealand, and Australia, CAL extended the original Taipei- Sydney flight to Auckland. This daily flight between Taipei and New Zealand offers passengers convenient one- stop service. As of the end of 2012, CAL served 112 destinations in 28 countries, including cargo freight and other code-shared services. In 2013, in connection with the introductions of new aircraft, CAL will inaugurate Taipei-Takamatsu route and increase service frequencies on Taipei-Shizuoka, Tapei-Toyama, Kaohsiung-Osaka, and Kaohsiung-Seoul routes. In addition, we will reinstate nonstop Taipei- Honolulu flight in anticipation of the potential Taiwanese tourist boom brought on by the new Taiwan-US Visa Waiver Program. We will continue to monitor closely the market demand, and develop future cross-strait routes accordingly to capture new business opportunities. Pursuing Excellence and Maintaining Leadership of the Industry 2012 was full of challenges, but CAL steadily faced all the difficulties and kept the leadership role in Taiwan’s aviation industry by strengthening its organizations. We further grew the Asian flight network by adding new destinations and frequencies for the Japan, Korea, and Mainland China markets. As for the long haul routes, CAL cooperated with Delta Airlines to boost the Taiwan-US traffic and increased the flights to New Zealand. In 2013, CAL will follow the market trend closely to take advantage of opportunities afforded by new measures such as the liberated amount of Mainland tourists to Taiwan and the Taiwan- US Visa Waiver Program. 2012/03 CAL Launches Flights to Kagoshima and Shizuoka 7 www.china-airlines.com
  7. 7. 9 www.china-airlines.com China Airlines | Annual Report 2012 | 10 Go Top Leveraging Information Technologies to Strengthen Cargo Services CAL created a smartphone app “CAL CARGO” to provide real-time freight information to cargo agents and consignors. “CAL CARGO” has five main functions: flight schedule, flight status, freight inquiry, my favorite, and contact channels. Besides tracking flight schedules and flight/freight updates, consignors can store specific flights and booking numbers through the “my favorite” menu to monitor the shipment’s real-time status including U.S. customs declaration. The app also provides the contact information of CAL’s global business stations and customers can call or send messages to CAL worldwide by a simply click. CAL developed a new generation freight operating system called CCNet. This system has been online since July 3, 2012. Because it was developed in house, we realized significant savings in software acquisition and maintenance expenses. CCNet has an open architecture, with the ability to connect immediately according to the needs of the customers. The system is easy to operate and has raised the efficiency of our internal work flow and facilitated the training of new personnel. Strengthened the Competitiveness of International Freight Services CAL has one of the world’s largest cargo fleets with 21 Boeing B747-400F cargo aircraft. We flew 84 cargo flights every week, including 31 on transoceanic routes, seven on European routes, 37 on Southeastern and North Asian routes, and nine China routes. According to data from International Air Transport Association (IATA), CAL carried 5.4 billion ton-kilometers of freight in 2011 and ranked the eighth globally. In the future, CAL will continue to build up our freight network and improve the utilization of freighters, as well as cargo holds on passenger flights. We will also step up cooperation with alliance partners to strengthen the leadership role of our cargo brand and to gain more international clients. CAL joined SkyTeam Cargo on October 3, 2012 and significantly raised our international visibility. CAL now works with alliance partners in terms of purchasing and marketing, and jointly develops a complete offering of four products: Equation, Cohesion, Variation, and Dimension. In terms of the cargo market in Mainland China, CAL served 24 cities including Chongqing, Shanghai, Guangzhou, Nanjing, and Xiamen. To improve freight cabin utilization and enhance the quality of our services, CAL signed a “Commercial Cooperation Agreement” with China Cargo Airlines. This enables the exchange of cabin berths on the Taipei-Shanghai route and acting as the agent for each other. Further, CAL signed a “Preferred Pricing Agreements” with Air China, China Southern Airlines, China Postal Airlines, and China Eastern Airlines . With respect to the Japan cargo market, we continued to offer freight services from Osaka to both east and west coasts of US via transoceanic passenger and cargo aircraft routes. CAL also signed a “Business Cooperation Agreement” with Nippon Cargo Airlines to exchange cabin berths on the Taipei-Tokyo route and to market jointly in other global markets. Finally, since April of 2012, CAL has served as the ground agent for Tonlesap Airlines and Palau Airways’ freight services on their B737-300 and B757-200 aircraft. CAL was responsible for transporting many special cargoes in 2012, including penguins, ant bears (myrmecophaga tridactyla), and various precision instruments. We also flew chartered cargo flights for silicon wafers, Beaujolais, etc. In addition, CAL assisted Taiwan Tourism Bureau to deliver lanterns as a gift to the Malaysian Tourism Bureau and sponsored the delivery project of the Annual Exhibition of Shaanxi Cultural Relics. | Business Operations of 2012 and Perspectives of 2013 | Las Vegas NingboNingbo NanchangNanchang 三亞 YanchengYancheng DalianDalian QindaoQindao ShenyangShenyang BeijingBeijing XianXian ZhengzhouZhengzhou WuxiWuxi NanjingNanjing FuzhouFuzhou HangzhouHangzhou ShanghaiShanghai KaohsiungKaohsiung TaichungTaichung XiamenXiamen SanyaSanya GuangzhouGuangzhou ShenzhenShenzhen (Pudong,Hongqiao)(Pudong,Hongqiao) HaikouHaikou (Taoyuan,SongShan)(Taoyuan,SongShan) ChongqingChongqing WuhanWuhan ChangshaChangsha ChengduChengdu TaipeiTaipei WenzhouWenzhou AucklandAuckland ShizuokaShizuokaShizuoka Toyama Seoul MacauMacau (Incheon,Gimpo)(Incheon,Gimpo) Phoenix SacramentoSacramento New OrleansNew Orleans San Diego Las Vegas San Diego Las Vegas Effective date from 2012/10
  8. 8. 11 www.china-airlines.com China Airlines | Annual Report 2012 | 12 Go Top Touching Passengers’ Heart with Thoughtfulness CAL offers the best services with thoughtful details. For instance, during summer months, sunward window shutters are kept closed on parked aircraft to offer a comfortable cabin environment. In flight, cabin crew will share relevant touring information on destinations, as well as information on pre-ordering duty free items on the return flights. Similarly, our ground-based staff offers heart-warming services to the passengers. In 2012, approximately 18% of the accolades received from customers were attributed to the ground service group. This is a four-fold increase compared to the previous years, showcasing CAL’s commitment to prioritized customer services. 24-hour E-services and M-services world-wide To provide services to global passengers, CAL offers website in seven different languages (Chinese, English, Japanese, German, Italian, Dutch, and Korean). We also have a mobile app for smartphones (on three different platforms of iPhone, Andriod, and Windows Phone7.5) that was first launched in December, 2010. Passengers can enjoy 24-hour services via the "Flight Schedule", "Flight Status", "Manage Travel", "Dynasty Member Services", "Promotions", and " FB Travel Channel" functions offered by the China Airlines App. New features added in 2012 include " Flight Reservation" and mobile boarding passes. Except for a few restricted routes, system-wide, nearly all passengers can check in on CAL’s website or through the smartphone app, to reduce the waiting times at the airports and make paperless eco-journey a reality. Initiating the Use of Mobile Boarding Passes To provide passengers with more convenient check- in service, CAL was the first Taiwanese airline to offer mobile boarding passes at Frankfurt and Hong Kong airports on March 26, 2012. This service was expanded to Taoyuan International Airport in June and later, to 12 airports globally as of the end of 2012. Using Internet, passengers can now check in online, select seats, enter passport information, print boarding passes, and download mobile boarding passes from the web or from the China Airlines App. Passengers with no checked luggage can enter the passport and security check lines with the mobile boarding pass and head directly to the gates. Mobile boarding passes on mobile phones are easily and quickly scanned at the gate, taking no more than 2 to 3 seconds. Passengers qualified to use the VIP lounge will enjoy even more convenient airport services as their lounge invitation will be shown on the mobile boarding pass as well. SkyPriority Service for Top Customers As a member of the SkyTeam alliance, CAL began offering SkyPriority services on all routes starting March 15, 2012. SkyPriority of SkyTeam provides a series of special services for international premium passengers. All passengers of Elite Plus, first class, and business class can enjoy the services of priority check-in, priority baggage, and advanced boarding. SkyPriority has been implemented at more than 800 airports, and will be available at over 1000 airports worldwide by early 2013. Prioritized Customer-oriented Services for Passengers CAL emphasizes every service detail to offer a prioritized, customer-oriented service. From the convenience of web and mobile reservation and ticketing, to efficient boarding with mobile boarding passes; from crew’s warm greetings to the enjoyment of Taiwanese local cuisines on board, CAL provides prioritized services to every passenger. 2012/06 CAL Offers New Mobile Services 11 www.china-airlines.com | Business Operations of 2012 and Perspectives of 2013 |
  9. 9. 13 www.china-airlines.com China Airlines | Annual Report 2012 | 14 Go Top Amazing Taste Experiences of Air Delicate Cuisines CAL actively works with well-known restaurants and chefs to offer the best cuisines in air. Our selections include such local favorites as the braised pork rice of Formosa Chang, to dishes from the five-star Palais de Chine Hotel, and from the modern cuisines of the famed Shanghai Shanghai, to Taiwan’s own pride—Chef Wu, Pao-chun's bread. Our flight attendants provide detailed information of each served dish, enabling the passengers to feel the Taiwanese culture while tasting the delicious foods. CAL had recruited Michelin chefs to offer high-class dishes in 2012. We also began offering Asian vegetarian meals on all flights departing from Taipei in September, 2012. This meal is available in all cabin classes and was designed by the celebrated vegetarian restaurant, Water Drop Teahouse. In 2013, CAL plan to unveil unique Chinese set meals created exclusively by four of Taiwan’s most famous chefs, Jian-fa Shih, Zhao-lin Chen, He-jin Chang, and Hong-che Kuo. Using Local Food Ingredients to Cherish Our Globe and Taiwan The new menu being developed by Taiwan’s four famous chefs will unite locally produced food ingredients with expertise of China Pacific Catering Service. This showcases CAL’s support to Taiwan’s agriculture and the government’s environmental policy on energy conservation In terms of tour products for overseas destinations, CAL introduced new packages to Shizuoka, Toyama, and Kagoshima in connection with the Taiwan-Japan Open Skies Agreement. We also initiated a partnership with JR Group’s Kyushu Railway Company to provide complete rail services in Kyushu, Japan. As for the Mainland China market, CAL added new tour destinations such as Sanya and Haikou. By the end of 2012, Dynasty Package offered tour products to 58 cities in 17 countries. To further serve our passengers, CAL launched online hotel reservation and booking systems, in April and November, 2012, for passengers going abroad and those visiting Taiwan, respectively. These systems assist passengers in pre-trip planning via online booking. CAL also developed a companion operating system for the lodging retailers to simplify the procedures and to raise product competitiveness and sales. Various Value-added Services for Dynasty Flyers There are more than 2.1 million Dynasty Flyer members, who enjoy special member privileges to foster their brand loyalty. The most important benefit is the accrual of reward mileages on all CAL flights, as well as flights on partner airlines through alliance and joint ventures. In 2012, we added new partners of Saudi Arabian Airlines (SV), Middle East Airlines (ME), Aerolineas Argentinas (AR), and Xiamen Airlines (MF). In addition, CAL introduced discounts for rentals from Hertz and Avis, mileage gift vouchers for room, meal, and spa treatment at the Taoyuan Novotel Hotel, bonus miles for stays in Regal Hotels and InterContinental Hotels Group, and bonus miles for hotel bookings made on Ctrip, the prominent online travel agent in Mainland China. Other Dynasty Flyer benefits include first-class upgrade awards, special upgrade awards on the Hong Kong route, bonus miles on Taichung-Macau flights, accommodation in first-class cabins for Emerald and Paragon members purchasing full-price business class tickets, discounts for Gold, Emerald, and Paragon members to upgrade/renew membership, prize drawings for new members, ticket discounts and prize drawing for members who update their cell phone information online, mileage vouchers for Dynasty Packages, ticket discounts for Gold, Emerald, and Paragon, as well as SkyTeam Elite Plus members’online purchases, and discounts for onboard duty-free purchases. Our integrated marketing partners include 18 airlines, 18 banks or credit card issuers, ten global and regional hotel chains, two online booking centers, three global car rental chains, and one telecommunication provider. Among them, CAL cooperated with HSBC Bank to offer the China Airlines Visa Infinite Card, which comes with discounts on CAL ticket purchases and bonus mileage accrual on CAL flights. Customers of HSBC’s global financial planning services also enjoy discounts from CAL’s online ticket purchase. and carbon reduction. In addition, the VIP lounges at Taoyuan Airport offer baked sweet potatoes, made by specially grown yellow yams from Tainan’s Xinhua District. The baked sweet potatoes have been certified by SGS and the Environmental Protection Administration of their low carbon content and bear the appropriate carbon footprint labels. Delicate Tour Products with Frequent Updates CAL’s “Dynasty Package” welcomed more than 160,000 tourists in 2012, topping all rivals. To accommodate the increased demand of free, independent travel for mainland tourists, CAL added Nanjing, Hangzhou, Chongqing, Chengdu, Guangzhou, Fuzhou, Shenzhen, and Xian to our original three focus cities of Beijing, Shanghai, and Xiamen. Tourists from these cities can purchase customized packages to Taiwan including flights and lodgings. Together with our current offerings from Southeastern and Northeastern Asian destinations, Dynasty Package to Taiwan is now available from 16 cities. It is worth mentioning that our 2012 tour packages were numerous and varied than ever to serve many niche markets. For example, we had teamed with vendors to offer medical-themed packages for comprehensive physical checkups or cosmetic surgeries, as well as featured tours of Jiufen Bed & Breakfast and other farm resorts. CAL was the exclusive sponsor of the rock band Mayday’s new year’s eve concert held in Kaohsiung, leading to a frenzy of ticket-buying across Mainland China and Southeast Asia. 2012/12 CAL Press Conference showcase traditional culinary feast | Business Operations of 2012 and Perspectives of 2013 |
  10. 10. 15 www.china-airlines.com China Airlines | Annual Report 2012 | 16 Go Top Diversified Operations to Maximize Group Efficiency To nurture and deepen the value chain of the aviation industry, CAL Group employs diversified operations to strengthen its competitiveness and to maximize its efficiency. The CAL Group controls 36 subsidiaries covering aviation, ground services, logistics, air cargo stations, catering services, bulk laundry services, information network, and tourism. Mandarin Airlines Mandarin Airlines is a subsidiary company of CAL with a fleet of eight single-aisle, 104-seat ERJ 190-100 aircraft. It is based in Taichung, and operates international flights from Taichung, Songshan, and Kaohsiung, as well as other scheduled cross-strait routes and Taiwan domestic routes. CAL owns a 93.99% share of Mandarin and the two airlines share resources including fleet, business, and management. They cooperate with each other closely to pursue mutual interests and growth. China Pacific Catering Service Ltd. China Pacific Catering Service is a joint venture of CAL (51%) and John Swire & Sons (H.K.) Ltd. (49%). It was founded in 1996 and remains the most established catering service firm in Taiwan. Our goal is to grow the firm into the best catering service provider in Asia. This company employs more than 200 chefs and uses high-tech equipment to produce meals under the most scrupulous sanitation standards. It served 27 international passenger and cargo airlines in 2012. In order to offer delicious and diverse meals, China Pacific Catering Service partners with the famous Taiwanese baker, Wu, Pao-chun, the Shanghai Shanghai, the Water Drop Teahouse vegetarian restaurant, the five-starred Palais de Chine Hotel, and the Michelin-starred China Blue restaurant in Conrad Tokyo. The company continues to update and create novel menus. Abacus Distribution Systems Taiwan Ltd. Abacus Distribution Systems Taiwan Ltd. is a subsidiary, with 93.93% shares held by CAL, established in October 9, 1990. It is a Taiwan-based marketing company of Abacus International Pte Ltd of Singapore. The firm’s main business is the sale of Abacus computer reservation system to domestic travel agencies, plus other services including computer software design and development, data processing, second- tier communication services, and the sale, installation, and maintenance of computer hardware. In recent years, Abacus was also diligently involved in the research and development of other ancillary products of a reservation system. With CAL joining the SkyTeam, Abacus cooperates with SkyTeam in marketing efforts, via various social media networks. Moreover, Abacus is leveraging mobile communication and cloud technology to provide customers with multiple value-added services. 15 www.china-airlines.com | Business Operations of 2012 and Perspectives of 2013 |
  11. 11. 17 www.china-airlines.com China Airlines | Annual Report 2012 | 18 Go Top China Pacific Laundry Services Ltd. China Pacific Laundry Services Ltd., a joint venture of CAL (55%) and John Swire & Sons ( H.K.) Ltd. (45%), was established in September, 1997. By introducing commercial washing services and technologies from abroad, China Pacific Laundry Services Ltd. meets all international standards in operations and service qualities. Its main business is to provide bulk laundry services to airlines, hotels, and other gyms and clubs. In recent years, the firm devoted significant efforts in improving the laundry processes and will unveil new equipment in 2013. It aims to improve efficiency, conserve energy, enhance service quality, and grow the company ultimately. Dynasty Hotel of Hawaii, Inc. Dynasty Hotel of Hawaii, Inc. is located in Honolulu, Hawaii and was acquired by CAL in 1973. It is a 16-story building with 199 guest rooms. The hotel joined the Wyndham Worldwide group in 2009 and carries the Ramada Plaza brand. It was awarded the 2012 Certificate of Excellence Award by TripAdvisor. The hotel’s restaurant is under renovation to become a more Hawaiian-themed establishment. The renovation should improve the quality of service to customers. Taoyuan International Airport Services Co., Ltd. Taoyuan International Airport Services Co., Ltd. was jointly founded by the Ministry of Transportation and Communication and CAL on December 1, 1978. It started its business operation on February 26, 1979 with the opening of the original Terminal One at Taiwan Taoyuan International Airport. The firm provides professional ground services to all flights under the goals of “safety, efficiency, and services.” Taoyuan International Airport Services Co., Ltd. passed IATA’s audit and became a certified ISAGO provider on February 11, 2012. ISAGO, the acronym for IATA Safety Audit for Ground Operation, is the highest-level audit standard for aviation industry suppliers. Taoyuan International Airport Services Co., Ltd. is the first Taiwanese ground services company to receive this certification. Hwa Hsia Company Ltd. Hwa Hsia Company Ltd. established in 1989, is a wholly-owned subsidiary of CAL. It was founded for the purposes of lowering the operating costs of CAL and achieving overall profits for the entire enterprise group. The work that Hwa Hsia took up in the early years only included maintenance of air cargo containers, laundry, headphone cleaning, and in-cabin cleaning. The firm has since grown extensively, providing additional services such as external aircraft cleaning, aircraft parts washing, maintenance of air cargo containers and in-cabin service carts, general cleaning of factories, office buildings, and residences, disease control, and temporary labor offerings. The number of employees increased to more than 500 from the original count of 124. In the future, Hwa Hsia will market aggressively to other partner airlines to become a qualified service depot for cargo containers, cargo pallet, cargo nets, and service carts. Novotel Taipei Taoyuan International Airport Novotel, another CAL’s wholly-owned subsidiary, is the first internationally-branded hotel in Taoyuan. Opened in 2009, it is Accor Group’s flagship airport hotel in Taiwan. The overall design of the hotel emphasizes the concepts of environmental protection and natural harmony. The hotel has 360 fashionable guest rooms, plus other facilities such as heated swimming pool, steam rooms, fitness center, and beauty salon. It boasts a grand ballroom with lofty five-meter high ceilings and five multifunctional conference halls to serve all business meetings and wedding parties. Novotel has been LPGA’s official hotel two years in a row. The “Wei Fang” Chinese restaurant in Novotel received award as one of the best restaurants in Taiwan due to its exemplary services and distinctive design. Novotel is truly the best international hotel in Taoyuan. 2012/2 Taoyuan International Airport Services (TIAS) Receives International Air Transport Association (IATA) ISAGO Certification | Business Operations of 2012 and Perspectives of 2013 |
  12. 12. 19 www.china-airlines.com China Airlines | Annual Report 2012 | 20 Go Top Human Resources as the Fuels for Growth Motivated employees are what fuel the growth and expansion of an enterprise. Through continuous modernization and innovations, CAL aims to stimulate the employees and raise our competitiveness. As CAL joined SkyTeam, we have developed new products and introduced a new fleet. CAL is stepping into a new era and we need the best talents to fuel our continued growth. Diverse Learning to Ingrain Brand Spirit into Employees’ Heart CAL adopts a diverse employee training regime to ingrain superior moral spirit and corporate values into employees’ heart. We expect these values to guide the employees in their conducts at the workplace, as well as in their daily lives. Our training and education regime include online learning and assessments, case studies in “CAL Employee Newsletter,” workshops and seminars, and polls for poster design. These activities aim to raise the employees’ consciousness to carry out CAL’s brand spirit and sustain our corporate culture. Electing Model Employees to Stimulate Devotion CAL held an election of model employees in 2012 to motivate employees in service devotion and to strengthen work ethics. Six new awards were added to the existing prizes, including “Award for Best Public Welfare Affair,” “Award for Best CAL Employee,” “Award for Best Environmental Protection Practitioner,” “Award for Best Public Relation Practitioner,” “Award for Best Safety Goalkeeper,” and “Award for Best Team Spirit.” The election was open to all employees and the winners inspired all to work harder in the future. All New Trophies for Senior Employees Trophies for Senior Employees mark the mutual growth of the employees and the company and symbolize the employees’ efforts and devotion. The trophy had been designed on the basis of gold plum blossoms, with a wooden pedestal, to symbolize the stable and dependable management styles. In 2012, CAL redesigned an all-new trophy for senior employees with transparent crystal along with elegant red plum blossoms to show the company’s updated, sustainable growth, as well as our resolute spirits and beliefs. 2012/12 Senior Employees were awarded in the 53rd Anniversary 2012/12 CAL Unveils Newly-designed Trophy for Senior Employee 19 www.china-airlines.com | Business Operations of 2012 and Perspectives of 2013 |
  13. 13. 21 www.china-airlines.com China Airlines | Annual Report 2012 | 22 Go Top A Corporate Citizen for Taiwan’s Future CAL is keenly aware of its responsibility as a corporate citizen and actively engages in public welfare activities. We assist in promoting tourism, culture and art experiences, sporting events, environmental protection awareness, and so on. Because we have dreams, we wish Taiwan to shine on the world stage; because we have love, we pray for a better world tomorrow. Being Outstanding Internationally CAL has long been devoted to Taiwan tourism and we vigorously market Taiwan internationally in support of government policies. In 2012, CAL continued to participate in domestic and international travel fairs and sponsored many activities hosted by the Tourism Bureau and the Taiwan Visitors Association (TVA). These include the Taiwan Lantern Festival in Changhwa, Sand Sculpture Art Festival in Fulong, and the Taiwan Culinary Exhibition in Taipei. CAL also assisted the Tourism Bureau and the Centers for Disease Control in disseminating important news bulletins via onboard announcements or short films. We participated in the printing and distribution of the “Taiwan Tourism Hotel & Restaurant Guide” published by TVA. For our effort, TVA awarded CAL the “2012 Special Award for International Tourism Marketing” in the aviation category. Repeat Winner at the U.S. Rose Parade Rose Parade of Los Angeles, California is a major event that attracts global attentions every January. The theme for the 2012 parade was “Just Imagine.” CAL, in cooperation with the Ministry of Foreign Affairs and the Tourism Bureau, won the international first prize with a float entry named “Spirit of Prosperity and Harmony.” CAL’s floats have appeared in Rose Parade in 26 consecutive years and won the prestigious prize 21 times. This year’s theme of “Spirit of Prosperity and Harmony” was inspired by the Book of Changes. The float featured a vividly designed floral dragon, spitting smokes with animated head movements. Beautiful ambassadors, dressed in Taiwanese, Hakka, and aboriginal costumes, greeted the parade audience and attracted millions of global viewers. CAL’s float in Rose Parade showcased Chinese culture to the world, brought in the New Year of Dragon, and prayed for a prosperous world. 2012/01 "Spirit of Prosperity and Harmony" Float Wins International Trophy at the U.S. Rose Parade 21 www.china-airlines.com | Business Operations of 2012 and Perspectives of 2013 |
  14. 14. 23 www.china-airlines.com China Airlines | Annual Report 2012 | 24 Go Top 2012 was China Airlines’ first year in our sustained campaign for environmental protection. During the year, CAL Volunteer Club members conducted two beach- cleaning drives to tidy up the coastal areas of Taoyuan’s Zhuwei Fishing Harbor. CAL also held a “Bike Festival” that had thousands of participants from our employees, their family members, and staff members of various domestic and international tourism bureaus. All the bikers experienced a fun ride and, at the same time, demonstrated their resolves in energy saving, carbon reduction, and earth loving. Cultivation of Taiwan’s Culture and Development of Branding Diplomacy CAL actively participates in domestic and international art and sporting events to promote national images of Taiwan and to develop international diplomacy through culture exchanges. In 2012, we sponsored activities such as “The Stunning Pop-up Books” and “The Dawn of Dinosaurs” hosted by the United Daily News Group, and the annual exhibit “Qing Dynasty and Western Court Jewelry” and “The Cultural Granderur of the Western Zhou Dynasty” held at the National Palace Museum. CAL also sponsored other culture exchange activities held by the government, universities, foundations, and visiting international missions. CAL is an energetic sponsor and supporter of various international games. We are particularly proud of the achievements of Taiwanese athletes. In 2012, CAL sponsored the following events: 2012 OEC Taipei Ladies Open, athletes of Chinese Taipei Sailing Association to Asian Windsurfing Championship in Thailand, 2012 Chinese Track and Field Game in the Bay Area of San Francisco, and ESPN’s “Cheers for Jeremy Lin.” For its efforts, CAL was awarded the “Best Sports Promoter” honor by the Executive Yuan in 2012. Charter Flights that Fulfill Every Mission CAL has abundant experiences with air charters, and the best example is our mission of charter flights in 2012 for the President and Vice President to visit friendly nations in Africa and transit in U.S. With discreet and professional services, CAL provided the safest and the most comfortable trips for the President, Vice President, and other VIPs. The Continual Growth of Love As the leader of the aviation industry in Taiwan, CAL has long been devoted to public welfare and humanitarian aid to fulfill its social responsibility as a corporate citizen. In particular, after the establish of the CAL Volunteer Club in 2011, CAL has participated actively in caring for the disadvantaged, watching out for our neighbors, protecting the environment, and contributing to the society in general. We truly believe in repaying the society for what we have received. To support local families, CAL’s Volunteer Club and Taoyuan Fishermen's Association held a “Surrounding the Stove” activity for nearly 200 orphans in Taoyuan County on the Eve of Chinese New Year. In addition, CAL volunteers taught English at Zhuwei Elementary School and shared their aviation experiences with the schoolchildren. Volunteers also periodically visited the orphanages to donate goods and to arrange visiting activities for children. Caring for the disadvantages, CAL was a sponsor in numerous activities including the “Touching the World with Love from Taiwan” held by Chou, Ta-kuan Foundation, “Cross-Strait Bike Trips” held by Xin-yin Orphanage in Yun-lin County, and “Dream-realizing Project” of R.O.C. Make-a-wish Foundation. CAL also assisted in transporting patients of rare diseases, such as spinal muscular astropy, cerebral hypoxia, and congenital lymphedema, for international rescues and medical treatments. In addition, CAL sponsored the delivery of humanitarian aids for various campaigns conducted by international volunteer organizations. Examples include Tzu Chi Foundation’s “Volunteer Doctors for Beijing Flood,” Fu Jen Catholic University's “Tanzania International Volunteers,” and Chihlee Institute of Technology’s “Burkina Faso International Volunteers.” Finally, CAL delivered guide dogs for the Taiwan Guide Dog Association, donated salvaged aircraft parts and materials, and participated in charity fund raisings, with the hope to appeal others’ support and pass on the humanitarian love. 2012/06 CAL Flight Attendants Teach Course of Aviation and English at Zhuwei Elementary School 2012/04 President Ma, Ying-jeou visits Africa on China Airlines Chartered Flight | Business Operations of 2012 and Perspectives of 2013 |
  15. 15. 25 www.china-airlines.com China Airlines | Annual Report 2012 | 26 Go Top | Enhancement of Flight Operation and Maintenance | Endless Efforts for Aviation Safety Aviation safety is CAL’s utmost mission, and each and every employee is fully committed to it by integrating safety consciousness into our operations, system design, and organization. CAL forms its own safety culture by carefully managing and controlling the risks of aviation safety. CAL implements a safety management system and strictly controls the risks of all operations. CAL follows safety management policies mandated by the Civil Aeronautics Administration and International Aviation Transportation Association (IATA) to train seed instructors and to carry out the required safety trainings. In addition, CAL continues to implement aviation security projects to prevent any security incidents both in the air and on the ground. CAL’s Safety Management System (SMS), as required by IATA and the Civil Aeronautics Administration, began operation in 2009. In 2012, we continued to develop and maintain the SMS, installed the Safety Action Group, and integrated SMS into the work of all departments. By the end of June, CAL completed the setup and implementation of SMS Phase III. In December, 2012, the Civil Aeronautics Administration conducted reviews and audits of our SMS with the goal of attaining the highest safety level. Of note is CAL’s systematic management of aviation risks in all operational areas such as flight operations, in- flight services, and ground handling. We have a safety report policy that encourages employees to quickly and honestly report all identified incidents and hazards. This has resulted in a reduced frequency of safety incidents, as evident in the 130% more positive reports in 2012 than 2011. CAL is the first airline in Taiwan to receive the IOSA (IATA Operational Safety Audit) certification. The IOSA program is an internationally recognized and accepted evaluation system designed to assess the operational management and control systems of an airline. All IATA members are IOSA registered and must remain registered to maintain IATA membership. CAL gained IOSA certificate for the first time in 2005. After that, CAL successfully passed the recurring audits in a 24-month cycle. In fact, audits in 2006, 2008, 2010, and 2012 had identified zero defects at CAL. Our current IOSA registry is valid until February 25, 2013 and will be extended to February 25, 2015. The IOSA certification shows that CAL’s setup and implementation of SMS and its sub-systems are recognized and approved by IATA. CAL will continue the efforts and demand every employee of every department to take up the responsibilities for safety. We will actively identify and manage the risk of operations through SMS and prevent accidents from occurring again. 2012/12 CAL Maintenance Facility Receives ISO 14001 Certification 25 www.china-airlines.com Implementation of Safety Management to Raise the Overall Safety
  16. 16. 27 www.china-airlines.com China Airlines | Annual Report 2012 | 28 Go Top | Enhancement of Flight Operation and Maintenance | The corresponding training material is designed with the requisite course syllabi and fully employs audio-visual media to enrich the training contents. This has raised the efficiency of flight crew training and lowered operational risks. CAL’ flight crew training system was approved by 2012 IOSA. Aviation Quality Services (AQS), the accredited audit organization that had conducted the audit on CAL, was very positive about CAL’s continual improvements of training system to reach the international standard. Using LOSA to Reform the Flight Operations Line Operations Safety Audit (LOSA), developed by the University of Texas, is a critical organizational strategy aimed at developing countermeasures to operational errors. LOSA uses highly trained observers to collect data about flight crew behavior and crews’ strategies for managing threats, errors and undesirable states. CAL first deployed LOSA in 2004 and improved our flight operations according to the audit report. A second LOSA was conducted in 2011 and the results showed that CAL performed significantly better than the first one, as well as better than other competitors. CAL continued to improve flight operations in 2012 based on the LOSA audit, and had implemented many safety measures such as minimizing the operational pressure during flight crew’s pre-flight check, strengthening the prompts during take- off and landing phases, and integrating LOSA data into EBT database for future training. Most importantly, the audio-visual training material for flight crews’ prompts and other trainings on leadership, communications, cross- checking, management of work load, assertiveness, inquiry and advocacy, etc. are all included in the CRM training courses and will be continually implemented in 2013. Expert Maintenance Capabilities for Flight Safety CAL’s advanced professional aircraft maintenance center is the largest of its kind in Taiwan. CAL has aircraft maintenance licenses certified by the United States, the European Union, China, and Hong Kong. Our advanced hangars allow simultaneous work on five large planes. In addition, CAL built 120,000-pound Engine Test Cells to satisfy the needs for engine testing. CAL provides high- quality maintenance services for its passenger and cargo fleet, as well as those from more than 40 global clients. Our expert maintenance capability is evident from CAL’s higher than average dispatch reliability rate in the aviation industry. CAL’s maintenance missions are “safety, reliability, and trustworthiness,” and we continue to improve the work flow and procedures in our daily business. In 2012, CAL completed the implementation of the Maintenance Performance Toolbox developed by the Boeing Company. We successfully integrated the information on aircraft structure management and maintenance programs, resulting in optimum maintenance plans, increased dispatch reliability, and lowered frequencies of cancellation and delays. In 2013, CAL will introduce additional advanced material management system and facility maintenance system. These are aimed to further raise maintenance efficiency, improve the utilization of time and resources, increase service qualities and operational efficiency, and lower maintenance costs. Excellent Flight Training for Top Aviation Safety CAL’s flight operations department continues raising the qualities of flight crew by implementing training in a systematic and scientific manner. Our training for flight crew and instructors is based on information gathered from training, testing, initial performance, internal and external audits, and various observation reports.
  17. 17. 29 www.china-airlines.com China Airlines | Annual Report 2012 | 30 Go Top | The Trend for Environmental Protection | The First Year of Environmental Protection - CAL’s Initiation of Green Aviation CAL designated 2012 as the first year of environmental protection to turn our love for the globe into actions instead of slogans. We included environmental management as an important objective of our operations and made every effort to conserve energy and reduce carbon emissions. Every flight should be a green flight that is friendly to our earth. Environmental Management as an Important Focus for Operations In response to the environmental risk brought by global climate changes, CAL established a formal corporate organizational structure to implement environmental management programs based on ISO 14001. At the highest level, there is an environmental committee headed by the president. This committee oversees all strategic planning, coordinates resource utilization, and sets up environmental management committees and action groups at various departmental levels. In addition, our environment management systems are conducted via the PDCA management cycle and are evaluated using annual management performance indexes. They cover various operational areas including aircraft maintenance, services, flight operations, administration, etc. CAL’s environmental protection objective is guided by our six environmental policies. They are “complying with laws and fulfilling the responsibilities for environmental protection,” “establishing environmental management systems and performance indices,” “carrying out eco education and fostering employees’ consciousness for environmental protection,” “promoting eco flights and green supply chains,” “constructing a low-carbon operational environment and raising the general eco efficiency”, and “supporting green research and activities for sustainable development.” Continuous Monitoring and Verification of Greenhouse Gas Emissions In accordance with ISO/CNS 14064-1, CAL examined and reported the greenhouse gas emissions generated in 2011 from our flight operations, ground services, and administrative services. As an independent check, CAL retained bsi Taiwan Branch to conduct a third-party validation and verification. We received a certificate of “Reasonable Assurance” that attests to the accuracy and credibility of CAL’s greenhouse gas emissions data. CAL’s greenhouse gas emission in 2011 (including scopes 1 and 2) was 6,628,363 metric tons of CO2e. Of these, scope 1 had 6,603,107 tons, mainly from aircraft fuel. This is CAL’s fourth year in reporting and we will continue the effort in the future. Nonstop Efforts for Energy Conservation and Carbon Reduction Despite CAL’s continuing effort in fuel saving and carbon reduction, the global economic depression in 2012 resulted in reduced Revenue Tonne Kilometer (RTK) than 2011. As such, the fuel saving efficiency per RTK is lower by 0.0114 and the carbon reduction efficiency per RTK is lower by 0.0359. The details are listed as follows. The List of Aircraft Fuel Saving and Carbon Reduction 2012 2011 Comparison Fuel Consumption (Kg) 1,973,248,428 2,065,257,969 Down 92,009,541 Production of CO2 (Kg) 6,215,732,548 6,505,562,602 Down 289,830,054 RTK 7,785,419,370 8,532,333,689 Down 746,914,319 Fuel/RTK 0.2535 0.2421 Down 0.0114 (CO2/RTK) 0.7984 0.7625 Down 0.0359 29 www.china-airlines.com
  18. 18. 31 www.china-airlines.com China Airlines | Annual Report 2012 | 32 Go Top CAL’s Maintenance certified by ISO 14001 CAL’s maintenance received ISO 14001 Environment Management System certification in December 2012. CAL is the first airline in Taiwan to receive this certification and it is a significant milestone for us. The occasion brought Taiwan’s airline industry in line with international practices of sustainable environmental management. Annual Carbon Reduction Worth 86 Daan Forest Park CAL actively implemented various environment- related projects across all operational areas including ground services, maintenance, flights, and customer services. We also set up key performance indicators (KPI) to control and monitor the projects. In 2012, there were 64 KPIs for environmental management in total, and the annual goal was to reduce carbon emission by 5%. When compared to 2011, the results for some major categories were: jet fuel decreased 20,978,870 pounds, gasoline decreased 208,676 liters, electricity reduced 2,023,868 units, water reduced 3,672 units, and paper usage decreased 1,915,014 sheets. The total amount of carbon reduction was 31,719 metric tons of CO2e, equivalent to 86 Daan Forest Park. | The Trend for Environmental Protection | Carrying out Pacific Greenhouses Gases Measurement (PGGM) CAL participated in the Pacific Greenhouse Gases Measurement (PGGM) research conducted by the National Central University and Environmental Protection Administration. CAL’s Airbus A340-300 aircraft numbered B18806 was installed with the IAGOS (In-service Aircraft for a Global Observing System) instrument and was officially launched on June 26, 2012. CAL is the first Asian airline participating in the PGGM project and the first to operate an IAGOS- equipped flight for taking atmospheric measurements on trans-Pacific routes. In the second half of 2012, CAL helped collect upper air samples on 428 flights (including 64 on the Taipei-Vancouver route). 2012/06華航全球首架跨太平洋氣候觀測機正式啟航 Carrying out EU ETS Project According to Monitoring Plans approved by EU Emissions Trading Scheme (EU ETS) and Dutch Emission Authority (NEA), CAL completed the 2011 annual report and invited BUREAU VERITAS to serve as a third party assurance agent. The results showed that CAL’s flights to the European area (including flying to and from or in the EU area) emitted approximately 840,000 metric tons of carbon dioxide. NEA notified CAL in December, 2012 that, because ICAO will establish a global, consistent emission exchange system in September, 2013, EU currently only monitors the emission of intra-EU flights. Monitoring of emission outside of European areas is postponed for one year. CAL is closely watching the latest developments in anticipation of future reporting requirements. 86 Daan Forest Park 2012/06 CAL Launches the World's First Trans-Pacific Climate Observation Flight
  19. 19. 33 www.china-airlines.com China Airlines | Annual Report 2012 | 34 Go Top | The Trend for Environmental Protection | Promoting Eco Education and Awareness CAL promotes environmental education through a variety of channels. The cultivation of employee environmental awareness helps to form an environmental consensus within the company. These channels include: using the Weekly Letter and the "Let's Eco Together" internal website to promote a different environmental issue every week; using the internal e-learning platform to support environmental education classes such as the Importance of Environmental Management, Dimensions of Environmental Management and Energy-saving and Carbon Reduction Measures. Our goal is to keep employees up to date on international environmental trends, inform them about environmental challenges for the aviation industry, as well as teach them about CAL's environmental governance and the ISO 14001 environmental management system. Investments in Environmental Protection CAL invested NT 13.87 million dollars and associated human resources to promote eco affairs and education. Our environmental efforts are varied and numerous, including purchasing eco hardware (equipment for prevention and control), purchasing green supplies, establishing ISO 14001 environmental management system, assisting Pacific Greenhouse Gases Measurement, carrying out EU ETS project, conducting audits on greenhouse gas emission, redesigning CSR eco web pages, and so on. Devotion to Eco Public Welfare Activities CAL has long been devoted to eco, non-profit activities to show our love for Taiwan and the Earth. CAL volunteers conducted beach cleanups at Taoyuan Zhuwei Fishing Harbor. CAL joined “Earth Hour Taiwan” held by the Society of Wilderness on March 31, 2012 and turned off all nonessential lighting for one hour (20:30 to 21:30). We also participated in the demonstration and promotion of electric vehicles with the Industrial Technology Research Institute. Our actions demonstrated our love toward the earth and our resolve to save energy and reduce carbon footprint. CAL received an Outstanding Achievement Award of 2012 “Energy Conservation and Carbon Reduction Action Mark” from the Environmental Protection Administration, Executive Yuan. In 2012, CAL also received the “Super Green Judges’ Award” and the first prize in the Transportation category of the “2012 Green Brand Survey” conducted by Business Next Magazine. 2012/03 Business Next Presents CAL with Top Super Green Transportation Award Realization of Eco Trips CAL has successfully implemented E-services such as online check in, mobile boarding passes, self-printed boarding pass, airport kiosks, and self-printed baggage tags. We are making paperless trips come true. CAL uses mostly local ingredients to prepare snacks served in the VIP lounges to reduce carbon emission. We also purchase bottled drinks of larger volume to reduce the amount of bottles or packaging, and we sort and recycle waste categorized by food residuals, papers, and plastic bottles. Our service products and procedures also follow the principles of environmental protection to promote Eco services. For example, the headrest covers and pillowcases used in premium cabins are made of 35% coffee yarn and 65% recycled yarn made from plastic bottles; amenity kits in business class are made of non- woven fabric and contain decomposable toothbrush made from corn starch; toilet bags in economy class used innovative seals; and the elimination of the plastic bags for onboard slippers. In addition, in terms of reducing weight and fuel consumption, CAL now uses all-aluminum meal carts that are three kilograms lighter than the old one. On long haul routes, the 30 meal carts onboard can save 31 kilograms of fuel every flight. Also, utensil in the economy class is now 69 grams lighter than before. CAL worked with the Industrial Technology Research Institute to calculate and highlight the carbon footprint of the main dishes served on the Taipei-Frankfurt route. The business-class menu on this flight was printed with soy ink on recycled paper. Flights on this route also served the light-weight Yes mineral water with reduced plastic contents of 23% and 45%, for the bottle and the cap, respectively. 2012/12 CAL' 53rd Anniversary Celebrations - The Carbon Footprint Menu Experience
  20. 20. www.china-airlines.com35 China Airlines | Annual Report 2012 | 36 Go Top Financial Status Contents 36 Financial and Operating Analysis 36 Operating Profit and Net Profit 36 Operating Revenues 39 Operating Costs and Employee Productivity 40 2012 Financial Report 35 www.china-airlines.com | Financial and Operating Analysis | Operating Profit and Net Profit In 2012, China Airlines’ operating profit was NT$ 343 million (operating margin 0.3%), a increase of NT$1,907 million over 2011. Net profit reached NT$ 58 million (net margin 0.04%), an increase profit of NT$ 2,012 million over 2011. Operating Revenues In 2012, total operating revenue reached NT$132,608 million, an increase of 0.3% over 2011. Total operating cost decreased by 1.2% to NT$132,265 million. Passenger revenue raise by 7.2% to NT$86,621 million and cargo revenue decay by 12.0% to NT$ 40,809 million, respectively. Other revenue raise by 3.0% to NT$ 5,179 million.
  21. 21. www.china-airlines.com37 China Airlines | Annual Report 2012 | 38 Go Top | Financial and Operating Analysis | Passenger Business Passenger revenue was NT$86,621 million in 2012, an increase of NT$5,796 million or 7.2% over 2011. According to the breakdown of passenger revenue by routes, North America represented the prime market contributing 24.7%, followed by Southeast Asia, Northeast Asia and China, with the contribution of 19.2%, 18.6% and 15.6%, respectively. Compared with those in 2011, passenger capacity (ASK) increase by 4.3%, passenger traffic (RPK) increase by 3.4%, and passenger yield increase by 3.7% to 2.64 (TWD/RPK). Passenger load factor goes down by 0.7ppt to 77.3%. Cargo Business Cargo revenue was NT$40,809 million in 2012, an decrease of NT$ 5,579 million or 12.0% over 2011. North America, the largest portion of cargo revenue, operated 56.4% of the cargo revenue, followed by Southeast Asia 15.5% and Europe 14.7%. In 2012, cargo capacity (FATK) decrease by 16.1% yoy. Cargo Traffic (FRTK) decrease by 14.9% yoy, and cargo yield increase by 3.3% to 8.45(TWD/FRTK). Cargo load factor goes up by 1.1 ppt to 71.3%.
  22. 22. www.china-airlines.com39 40 Go Top | Financial and Operating Analysis | Operating Cost and Employee Productivity Operating expense was NT$132,266 million in 2012. The three largest cost items were fuel (46.2%), airport & ground handling charge (12.3%), and Labor cost (10.3%). In 2012, unit cost was up by 9.5% yoy to 12.48 (NT$/ATK), Without fuel cost, unit cost was up by 12.4% yoy. As of December 31st 2012, the number of average employees for 2012 was 10,693. Employee productivity, measured by ATK per employee, RTK per employee, and revenue per employee, proved with a negative trend compared to 2011. INDEPENDENT AUDITORS’ REPORT The Board of Directors and the Stockholders China Airlines, Ltd. We have audited the accompanying balance sheets of China Airlines, Ltd. as of December 31, 2012 and 2011 and the related statements of income, changes in stockholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of China Airlines, Ltd. as of December 31, 2012 and 2011 and the results of its operations and its cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China. We have also audited the consolidated financial statements of China Airlines, Ltd. and its subsidiaries as of and for the years ended December 31, 2012 and 2011 on which we have issued an unqualified opinion in our report dated March 29,2013. March 29, 2013 Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail. | 2012 Financial Report |
  23. 23. 41 www.china-airlines.com 42 Go Top CHINAAIRLINES,LTD. BALANCESHEETS DECEMBER31,2012AND2011 (InThousandsofNewTaiwanDollars) 2012201120122011 ASSETSAmount%Amount%LIABILITIESANDSTOCKHOLDERS’EQUITYAmount%Amount% CURRENTASSETSCURRENTLIABILITIES Cashandcashequivalents(Notes2and4)$9,011,3645$8,947,3974Short-termloans(Notes13and27)$1,600,0001$-- Financialassetsatfairvaluethroughprofitorloss-current(Note2,5and23)1,253,61513,278,7392Derivativefinancialliabilitiesforhedging-current(Notes2,23and24)23,703-47,076- Available-for-salefinancialassets-current(Notes2,6and23)62,738-96,131-Accountspayable337,538-536,479- Derivativefinancialassetsforhedging-current(Notes2,23and24)52,767-108,668-Accountspayabletorelatedparties(Note25)1,185,3431965,5951 Receivables:Accruedexpenses(Notes2and25)9,597,896512,253,6346 Notesandaccounts,net(Notes2,3and7)7,058,81849,723,6205Advanceticketsales(Note2)7,168,39948,771,2814 Notesandaccounts-relatedparties(Note25)385,058-282,809-Bondspayable-currentportion(Notes2,14,23and25)6,130,000312,200,0006 Otherreceivables(Note8)391,992-510,901-Loansanddebts-currentportion(Notes15,23and26)16,671,452918,047,7629 Inventories,net(Notes2and9)8,521,79248,587,2924Capitalleaseobligations-currentportion(Notes2and16)840,208-1,185,6391 Deferredincometaxassets-current(Notes2and20)212,169-152,994-Othercurrentliabilities2,029,06511,774,4661 Othercurrentassets1,366,99111,233,9521 Totalcurrentliabilities45,583,6042455,781,93228 Totalcurrentassets28,317,3041532,922,50316 LONG-TERMLIABILITIES,NETOFCURRENTPORTION LONG-TERMINVESTMENTSDerivativefinancialliabilitiesforhedging-noncurrent(Notes2,23and24)11,429-25,325- Financialassetsatfairvaluethroughprofitorloss-noncurrent(Notes2,5Bondspayable-noncurrent(Notes2,14,23and25)16,205,000916,550,0008 and23)--374,085-Loansanddebts-noncurrent(Notes15,23and26)63,749,3923369,385,61034 Derivativefinancialassetsforhedging-noncurrent(Notes2,23and24)759---Capitalleaseobligations-noncurrent(Notes2and16)248,664-1,135,0671 Financialassetscarriedatcost-noncurrent(Notes2,10and23)371,367-371,367- Investmentsaccountedforbytheequitymethod(Notes2and11)9,310,86459,255,1825Totallong-termliabilities,netofcurrentportion80,214,4854287,096,00243 Otherfinancialassets-noncurrent13,659-12,980- OTHERLIABILITIES Totallong-terminvestments9,696,649510,013,6145Accruedpensioncosts(Notes2and17)6,900,73246,378,7173 Deferredprofitsonsale-leaseback(Note2)4,735,67535,312,8533 PROPERTIES(Notes2,12and26)Others749,087-1,061,014- Cost Land1,678,78311,688,2831Totalotherliabilities12,385,494712,752,5846 Buildings7,245,11747,260,0914 Machineryandequipment4,103,11424,159,8962Totalliabilities138,183,58373155,630,51877 Flightequipment198,224,033104198,271,14398 Furniture708,947-693,434-STOCKHOLDERS'EQUITY Leasedflightandotherequipment14,056,268714,291,7357Capitalstock,NT$10.00parvalue;authorized-5,200,000thousandshares; Leaseholdimprovements1,044,5531996,380-issuedandoutstanding-5,200,000thousandsharesin2012and4,631,622 Revaluationincrement41,298-41,298-thousandsharesin201152,000,0002746,316,22423 Totalcostandrevaluationincrement227,102,113119227,402,260112Capitalsurplus1,405,3941422,101- Accumulateddepreciation102,287,5215492,020,66845Retainedearnings 124,814,59265135,381,59267Legalreserve316,010-799,630- Constructioninprogressandprepaymentsforequipment(Note27)8,740,85855,150,7833Specialreserve3,873,37025,162,0713 Unappropriatedearnings(accumulateddeficit)58,804-(1,772,321)(1) Netproperties133,555,45070140,532,37570Totalretainedearnings4,248,18424,189,3802 Otherequity INTANGIBLEASSETSCumulativetranslationadjustments(2,599,694)(1)(1,598,197)(1) Computersoftware,net(Note2)408,222-385,726-Netlossnotrecognizedaspensioncost(2,917,215)(2)(2,325,184)(1) Deferredpensioncost(Note2)59,136-118,271-Unrealizedvaluationlossonfinancialinstruments(182)-50,010- Unrealizedrevaluationincrement41,298-41,298- Netintangibleassets467,358-503,997-Companysharesheldbysubsidiariesreclassifiedtotreasurystock(36,554)-(36,554)- Totalotherequity(5,512,347)(3)(3,868,627)(2) OTHERASSETS Deposits(Note27)10,196,933510,521,7945Totalstockholders'equity52,141,2312747,059,07823 Deferredincometaxassets-noncurrent(Notes2and20)6,834,27346,695,4233 Restrictedassets-noncurrent(Notes25and26)545,460-660,980- Otherassets(Note2)711,3871838,9101 Netotherassets18,288,0531018,717,1079 TOTAL$190,324,814100$202,689,596100TOTAL$190,324,814100$202,689,596100 Theaccompanyingnotesareanintegralpartofthefinancialstatements. CHINA AIRLINES, LTD. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings [Loss] Per Share) 2012 2011 Amount % Amount % REVENUES (Notes 2 and 25) Passenger $ 86,621,265 65 $ 80,825,429 61 Cargo 40,808,925 31 46,388,470 35 Others 5,178,641 4 5,026,570 4 Total revenues 132,608,831 100 132,240,469 100 COSTS (Notes 9, 21 and 25) Flight operations 81,912,308 62 83,461,996 63 Terminal and landing fees 19,379,015 15 18,894,391 14 Passenger services 8,286,577 6 7,904,359 6 Aircraft maintenance 11,001,675 8 11,882,485 9 Others 2,846,879 2 2,872,199 2 Total costs 123,426,454 93 125,015,430 94 GROSS PROFIT 9,182,377 7 7,225,039 6 OPERATING EXPENSES (Notes 21 and 25) Marketing and selling 6,251,334 5 6,178,062 5 General and administrative 2,587,953 2 2,611,841 2 Total operating expenses 8,839,287 7 8,789,903 7 OPERATING INCOME (LOSS) 343,090 - (1,564,864) (1) NONOPERATING INCOME AND GAINS Interest income 180,921 - 159,157 - Investment income recognized under the equity method (Notes 2 and 11) 652,849 1 662,566 1 Dividend income (Note 2) 186,901 - 97,529 - Gain on disposal of properties, net (Notes 2 and 25) 7,388 - 41,505 - Valuation gain on financial instruments, net (Notes 2 and 5) 472,167 - 6,057 - Foreign exchange gain, net 3,556 - 189,217 - Others 612,480 1 541,251 - Total nonoperating income and gains 2,116,262 2 1,697,282 1 NONOPERATING EXPENSES AND LOSSES Interest expense (Note 25) 2,163,563 2 2,244,708 2 Others 160,446 - 235,944 - Total nonoperating expenses and losses 2,324,009 2 2,480,652 2 PRETAX INCOME (LOSS) 135,343 - (2,348,234) (2) INCOME TAX EXPENSE (BENEFIT) (Notes 2 and 20) 76,539 - (393,963) (1) NET INCOME (LOSS) $ 58,804 - $ (1,954,271) (1) 2012 2011 Before Tax After Tax Before Tax After Tax EARNINGS (LOSS) PER SHARE (NEW TAIWAN DOLLARS; Note 22) Basic and diluted $ 0.03 $ 0.01 $ (0.51) $ (0.42) The accompanying notes are an integral part of the financial statements.
  24. 24. 43 www.china-airlines.com 44 Go Top CHINAAIRLINES,LTD. STATEMENTSOFCHANGESINSTOCKHOLDERS'EQUITY YEARSENDEDDECEMBER31,2012AND2011 (InThousandsofNewTaiwanDollars) UnrealizedCompanyShares RetainedEarnings(AccumulatedDeficit)(Notes2and18)ValuationGainHeldby UnappropriatedCumulativeNetLossNotorLossonUnrealizedSubsidiaries CapitalStockIssuedandOutstandingEarningsTranslationRecognizedasFinancialRevaluationReclassifiedintoTotal SharesCapitalSurplus(AccumulatedAdjustmentsPensionCostInstrumentsIncrementTreasuryStockStockholders' (InThousands)Amount(Note18)(Notes2and18)LegalReserveSpecialReserveDeficit)Total(Note2)(Note2)(Note2)(Notes2and12)(Notes2,18and19)Equity BALANCE,JANUARY1,20114,631,622$46,316,224$392,822$-$-$7,996,300$7,996,300$(3,370,031)$(2,621,974)$(64,422)$50,335$(36,554)$48,662,700 Appropriationofthe2010earnings Legalreserve---799,630-(799,630)------- Specialreserve----5,162,071(5,162,071)------- Cashdividends-NT$0.4pershare-----(1,852,649)(1,852,649)-----(1,852,649) Translationadjustmentsoninvestmentsinsharesofstocks-------78,226----78,226 Translationadjustmentsonaforeignoperatingentity-------1,693,608----1,693,608 CashdividendsreceivedbysubsidiariesforholdingtheCompany's shares--1,156---------1,156 Compensationrecognizedforemployeestockoptions--28,123---------28,123 Netlossin2011-----(1,954,271)(1,954,271)-----(1,954,271) Changeinunrealizedvaluationlossonavailable-for-salefinancialassets---------(17,583)--(17,583) Changeinunrealizedgainoncashflowhedgingfinancialinstruments---------124,072--124,072 Revaluationincrementtransferredtootherincomeondisposalof revaluedassets----------(9,037)-(9,037) Changeinnetlossnotrecognizedaspensioncost--------348,467---348,467 Unrealizedgainonfinancialinstrumentsofequity-methodinvestees---------7,943--7,943 Netlossnotrecognizedaspensioncostofequity-methodinvestees--------(51,677)---(51,677) BALANCE,DECEMBER31,20114,631,62246,316,224422,101799,6305,162,071(1,772,321)4,189,380(1,598,197)(2,325,184)50,01041,298(36,554)47,059,078 Appropriationofthe2011earnings Legalreserve---(483,620)-483,620------- Specialreserve----(1,288,701)1,288,701------- Issuanceofcommonstockforcash-February10,2012568,3785,683,776983,293---------6,667,069 Translationadjustmentsoninvestmentsinsharesofstocks-------(62,809)----(62,809) Translationadjustmentsonaircraftrequiredtobetreatedasforeign operatingentity-------(938,688)----(938,688) Netincomein2012-----58,80458,804-----58,804 Changeinunrealizedvaluationlossonavailable-for-salefinancialassets---------(27,716)--(27,716) Changeinunrealizedgainoncashflowhedgingfinancialinstruments---------(18,371)--(18,371) Changeinnetlossnotrecognizedaspensioncost--------(546,675)---(546,675) Unrealizedlossonfinancialinstrumentsofequity-methodinvestees---------(4,105)--(4,105) Netlossnotrecognizedaspensioncostofequity-methodinvestees--------(45,356)---(45,356) BALANCE,DECEMBER31,20125,200,000$52,000,000$1,405,394$316,010$3,873,370$58,804$4,248,184$(2,599,694)$(2,917,215)$(182)$41,298$(36,554)$52,141,231 Theaccompanyingnotesareanintegralpartofthefinancialstatements. CHINA AIRLINES, LTD. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 58,804 $ (1,954,271) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Deferred income taxes 16,541 (458,618) Depreciation and amortization 10,889,199 10,403,689 Provision for doubtful accounts - 72,017 Compensation cost of employee stock options - 28,123 Valuation gain on financial instruments, net (472,167) (6,057) Investment income recognized under the equity method (652,849) (662,566) Cash dividends received from equity-method investees 502,442 436,190 Loss on inventories, properties and idle properties 125,259 298,396 Gain on disposal of properties (7,388) (41,505) Gain on disposal of idle properties, net (22,929) (75,159) Amortization of deferred profit on sale-leaseback (577,178) (629,707) Amortization of deferred credits (66,414) (66,414) Net changes in operating assets and liabilities: Financial assets and liabilities held for trading 2,871,376 (2,972,745) Notes and accounts receivable 2,664,802 1,640,821 Notes and accounts receivable - related parties (102,249) 215,403 Other receivables 118,909 109,726 Inventories (5,030) (2,047,680) Other current assets (32,798) (874,121) Accounts payable (198,941) 228,393 Accounts payable - related parties 219,748 (104,262) Accrued expenses (2,500,579) (7,949) Advance ticket sales (1,602,882) 121,461 Other current liabilities 254,599 (16,565) Accrued pension cost 34,474 139,409 Other liabilities (231,853) (177,667) Net cash provided by operating activities 11,282,896 3,598,342 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of investments accounted for by the equity method (30,409) (200,000) Increase in other financial assets - noncurrent (679) - Acquisition of properties (6,437,786) (5,762,965) Proceeds of the disposal of properties 206,590 218,310 Increase in computer software (61,313) (58,430) Proceeds of the disposal of idle properties 27,861 93,165 Decrease in refundable deposits 324,861 764,204 Increase in deferred charges (8,870) (23,430) Decrease in restricted assets 115,520 344,964 Net cash used in investing activities (5,864,225) (4,624,182) CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term loans 1,600,000 (1,100,000) Decrease in short-term bills payable - (1,249,625) Proceeds of long-term debts 12,668,866 17,476,748 Repayments of long-term debts and capital lease obligations (19,838,897) (16,518,938) Issuance of bonds payable 5,785,000 6,000,000 Repayment of bonds payable (12,200,000) (3,500,000) Increase (decrease) in guarantee deposits received (13,660) 26,070 Decrease in deferred profits on sale-leaseback - (186,997) Cash dividends - (1,852,649) Issuance of common stock for cash 6,667,069 - Net cash used in financing activities (5,331,622) (905,391) EFFECT OF EXCHANGE RATE CHANGES (23,082) 81,648 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 63,967 (1,849,583) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,947,397 10,796,980 CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,011,364 $ 8,947,397 SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 2,157,303 $ 2,267,516 Less: Capitalized interest 90,300 75,309 Interest paid (excluding capitalized interest) $ 2,067,003 $ 2,192,207 Income tax paid $ 65,345 $ 67,179 NONCASH FINANCING ACTIVITIES Current portion of long-term loans and debts $ 16,671,452 $ 18,047,762 Current portion of capital lease obligations $ 840,208 $ 1,185,639 Current portion of bonds payable $ 6,130,000 $ 12,200,000 The accompanying notes are an integral part of the financial statements.
  25. 25. 45 www.china-airlines.com 46 Go Top CHINA AIRLINES, LTD. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS China Airlines, Ltd. (the “Company”) was founded in 1959 and its stocks are listed on the Taiwan Stock Exchange. The Company primarily provides air transport services for passengers and cargo. Its other operations include (a) mail services; (b) ground services and routine aircraft maintenance; (c) major maintenance of flight equipment; (d) communications and data processing services to other airlines; (e) sale of aircraft parts, equipment and entire aircraft; and (f) lease of aircraft. The major stockholders of the Company are the China Aviation Development Foundation (CADF) and the National Development Fund (NDF), Executive Yuan. As of December 31, 2012 and 2011, CADF held 35.91% and 39.10% of the Company’s shares, respectively, and NDF held 9.99% and 11.22% of the Company’s shares, respectively. The Company had 10,866 and 10,578 employees as of December 31, 2012 and 2011, respectively. 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the Business Accounting Law, Guidelines Governing Business Accounting and accounting principles generally accepted in the Republic of China. Significant accounting policies are summarized as follows: Foreign Currencies and Foreign Operations The Company maintains its accounts and expresses its financial statements in New Taiwan dollars. Nonderivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange differences arising from the settlement of foreign-currency monetary assets and liabilities are recognized in profit or loss in the settlement period. At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing exchange rates and the exchange differences are recognized in profit or loss. At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) and liabilities which are measured at fair value, are revalued using prevailing exchange rate. For a nonmonetary financial asset with the changes in fair value recognized as an adjustment to stockholders’ equity, exchange differences are recognized as an adjustment to stockholders’ equity. For a nonmonetary financial asset at fair value through profit or loss, exchange differences are recognized in the income statement. Foreign-currency nonmonetary assets and liabilities that are carried at cost are reported using the historical exchange rate on the date of transaction. Equity-method investments in foreign subsidiaries/affiliates are recorded in New Taiwan dollars using the rates of exchange in effect on acquisition dates. On the balance sheet date, the investments and the related equity in net income or net loss are restated at the prevailing exchange rates and weighted-average rates, respectively, and resulting differences are recorded as translation adjustments under stockholders’ equity. Under a regulation by the Securities and Futures Bureau, the carrying amount of an aircraft acquired and the related U.S. dollar-denominated obligation incurred for the acquisition are accounted for as an investment in a foreign operating entity if the Company’s use of the aircraft results in generating revenues and incurring expenses mainly in U.S. dollars. On the balance sheet date, the carrying amount of the aircraft and the related liability are restated at balance sheet date rates. The difference is recognized in stockholders’ equity as translation adjustment. Accounting Estimates Under the above guidelines, law and principles, certain estimates and assumptions have been used for the allowance for doubtful accounts, allowance for loss on inventories, depreciation of properties, impairment of assets, accrued expenses - frequent flyer program, pension cost, income tax, loss on pending litigations, bonuses of employees, etc. Actual results could differ from these estimates. Current and Noncurrent Assets and Liabilities Current assets include cash, cash equivalents and those assets held primarily for trading purposes or to be realized, sold or consumed within one year from the balance sheet date. All other assets such as properties and intangible assets are classified as noncurrent. Current liabilities are obligations incurred for trading purposes or to be settled within one year from the balance sheet date. All other liabilities are classified as noncurrent. Cash Equivalents Cash equivalents, consisting of commercial paper, are highly liquid financial instruments with maturities of three months or less when acquired and with carrying amounts that approximate their fair values. Financial Instruments at Fair Value Through Profit or Loss Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (FVTPL) include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial recognition. Financial instruments at FVTPL are initially measured at fair value. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss. At each balance sheet date subsequent to initial recognition, financial assets or financial liabilities at FVTPL are remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. Cash dividends received subsequently (including those received in the year of investment) are recognized as income for the year. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Derivative instruments that do not meet the criteria for hedge accounting are classified as financial assets or liabilities held for trading. Fair values are determined as follows: (a) listed stocks - at closing prices as of the balance sheet date; (b) beneficial certificates (open-end funds) - at net asset value as of the balance sheet date; and (c) convertible bonds - at values determined using valuation techniques. Hybrid instruments are financial assets designated as at fair value through profit or loss, and these are measured at fair value on initial recognition. Fair value of hybrid instruments is estimated using valuation techniques incorporating estimates and assumptions that are consistent with prevailing market conditions. Available-for-sale Financial Assets Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition or issuance. When fair value is remeasured, the changes in fair value are excluded from earnings and reported as a separate component of stockholders’ equity. The accumulated gains or losses are recognized as earnings when the financial asset is derecognized from the balance sheet. A regular way purchase or sale of financial assets is recognized and derecognized using transaction date accounting. Cash dividends are recognized as investment income on ex-dividend dates but are accounted for as reductions of the original cost of investment if these dividends are declared on the investees’ earnings attributable to periods before the purchase of the investments. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated on the basis of the new number of shares. Hedge Accounting The Company enters into some derivative transactions that aim to manage interest rates, exchange rates, fuel prices, and other factors affecting gains or losses on assets and liabilities. The hedging transactions are defined as cash flow hedge. When entering into hedging transactions, the Company has prepared official documents that describe the hedging relationship between hedging instruments and items been hedged, objective of risk management, hedging strategy, and the way to evaluate the effectiveness of the hedging instrument. Under cash flow hedge accounting, the profit or loss on the hedging instrument is recognized as profit or loss in the same period when the profit or loss on the hedged item is affected. The profit or loss on the hedging instrument is recognized as an adjustment to stockholders’ equity and reclassified to current profit or loss when forecast transactions that are being hedged affect profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liabilities, the associated gains or losses that were recognized directly in equity shall be reclassified to profit or loss in the same period or periods during which the asset acquired or liability assumed affects profit or loss. If a hedge of a forecast transaction subsequently results in the recognition of a nonfinancial asset or a nonfinancial liability, it removes the associated gains and losses that were recognized directly in equity and includes them in the initial cost or changed carrying amount of the asset or liability. However, if an entity expects that all or a portion of a loss recognized directly in equity will not be recovered in one or more future periods, it shall reclassify the amount that is not expected to be recovered into profit or loss. If the hedging instrument expires, is sold or terminated or no longer meets the hedge accounting criteria, the cumulative profit or loss on the hedging instrument that is effective and directly recognized as an adjustment to stockholders’ equity is still recognized as an adjustment to stockholders’ equity before forecast transactions occur and then reclassified to current profit or loss when forecast transactions occur. Financial Assets Carried at Cost Equity investments, such as non-publicly traded stocks, with fair value that cannot be reliably measured, are carried at original cost. Cash dividends are recognized as investment income on ex-dividend dates but are accounted for as reductions of the original investment costs if these dividends are declared on the investees’ earnings attributable to periods before the purchase of the investments. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated on the basis of the new number of shares. If there is objective evidence that a financial asset is impaired, a loss is recognized. However, the recording of a subsequent recovery of fair value is not allowed. Impairment of Accounts Receivable On January 1, 2011, the Company adopted the third time revised of Statement of Financial Accounting Standards (SFAS) No. 34 - “Financial Instruments: Recognition and Measurement.” One of the main revisions is that the impairment of receivables originated by the Company is subject to the provisions of SFAS No. 34. The Company should evaluate accounts receivable for individual and collective impairment at the end of each reporting period. When there is objective evidence of a decrease in the estimated future cash flow of accounts receivable as a result of one or more events that occurred after the initial recognition of the accounts receivable, the accounts receivable are deemed to be impaired. The Company has a short average collection period; thus, the impairment loss recognized is the difference between the carrying amount of accounts receivable and estimated future cash flows, without considering the discounting effect. Changes in the carrying amount of the allowance account are recognized as bad - debt loss, which is recorded in operating expenses - general and administrative. When accounts receivable are considered uncollectable, the amount is written off against the allowance account. Impairment of Assets Statement of Financial Accounting Standards No. 35 - “Impairment of Assets” requires the Company to determine on each balance sheet date if properties, intangible assets and other assets (including a cash-generating unit) have been impaired. If there is impairment, then the Company must calculate the recoverable amount of the asset or the cash-generating unit. An impairment loss should be recognized whenever the recoverable amount of the asset or the cash-generating unit is below the carrying amount, and this impairment loss is either charged to accumulated impairment or used to reduce the carrying amount of the asset directly. If the Company revalues properties as required by law, an impairment loss on revalued properties should be charged to unrealized revaluation increment on properties, and if the capital surplus - revaluation increment on properties is not enough, the portion that exceeds the balance will be recognized as loss in the statement of income. After the recognition of an impairment loss, the depreciation (amortization) charged to the asset should be adjusted in future periods for the revised asset carrying amount (net of accumulated impairment), less its salvage value, and calculated on a systematic basis over its remaining service life. If asset impairment loss (excluding goodwill) is reversed, the increase in the carrying amount resulting from reversal is credited to current income. However, loss reversal should not be more than the carrying amount (net of depreciation) had the impairment not been recognized. Inventories Inventories are primarily expendable and nonexpendable parts and materials, supplies used in operations and items for in-flight sale. These parts, materials and supplies are valued at the weighted-average cost less allowance for obsolescence. Items for in-flight sale are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. The costs of inventories sold or consumed are determined using the weighted-average method.

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