Air China Limited Announces 1H 2005 Results; Net Income Reached RMB 642 Million Despite High Oil Price.

HONG KONG -- Air China Limited ("the Company") (SEHK:753) (LSE:AIRC) today announced its financial results for the half-year ending 30 June 2005.

In the review period, the Group's (including Air China Limited, its subsidiaries and joint ventures) operating revenue was RMB 16.94billion, or an increase of 14.7% compared to the same period last year. Operating Income decreased 22.0% to RMB 1.39 billion from RMB 1.79 billion the same period last year. Net Income decreased 23.0% to RMB 0.64 billion from RMB 0.83 billion. Earnings per share was RMB 0.063. As at 30 June 2005, the gearing ratio (total liabilities divided by total assets) was 70.4%, a decrease of 2.6 percentage points from 73.0% at the end of 2004.

Revenue from passenger services was RMB 13.93 billion, representing an increase of 14.6% over the same period last year. Revenue from cargo and mail services was RMB 1.68 billion, representing an increase of 21.0% over the same period last year. The increase in air traffic revenue partially helped mitigate the adverse effects of rising jet fuel prices.

"The continuous increase in international jet fuel prices and intensifying market competition have affected our operations and profit quite severely. Despite such adverse market environment, we achieved solid results and maintained higher profitability than our domestic peers according to a number of different financial measures. We were able to do this through successful cost control and budget management, as well as enhanced marketing efforts," commented Air China Chairman Li Jiaxiang.

During the first six months of 2005, the passenger capacity of the Company measured in available seat kilometers (ASK) was 33.2 billion kilometers, representing an increase of 7.9% and the number of passengers carried increased 13% to 12.59 million. Revenue passenger kilometers (RPK) increased 13.1% to 23.9 billion kilometers. The passenger load factor went up 3.3 percentage points to a record high of 71.9%. Cargo transport capacity in available freight tonne kilometers (AFTK) was 2.39 billion tonnes kilometers, representing an increase of 3.2%. The revenue freight tonne kilometers (RFTK) increased 4.5% to 1.28 billion tonnes kilometers.

Cost Control and Enhanced Operating Efficiency: The Company has continuously worked to improve efficiency and reduce fuel consumption. By taking measures to reduce fuel consumption and practise effective hedging tools, the Company realized a saving of RMB 93.53 million. Meanwhile, the levy of fuel surcharges has been effective in offsetting increases in fuel cost. During the first half of the year, the daily utilization of aircraft averaged 10.2 hours, an increase of 0.1 hour over the same period of last year.

Network Expansion: As of 30 June 2005, the Company operated a total of 100,489 flights, serving 72 domestic and 36 international and regional destinations. The Company offered an average of 3,811 scheduled passenger flights and 34 scheduled cargo flights weekly. Traffic capacity allotted to key markets increased. On the international side, the Company increased the frequency of flights on profitable routes and opened a new Weihai-Seoul route. Regionally, the Company opened a new Hangzhou-Hong Kong route and resumed a Lhasa-Chengdu-Hong Kong service. Domestically, the Company increased capacity deployment on routes between the Company's Beijing hub and its operation bases around China, on routes that have high-level contribution to the network, on major routes originating from Beijing as well as on other profitable routes.

Hub Building Strategy: Over the course of the first half of 2005, Air China further cemented its dominant position at its Beijing hub. With 97 aircraft put into dedicated service around the Beijing hub, the Company's market share in Beijing reached 44.1%. The company continued to adjust its route network and used Chengdu as a base to develop the Western China market. Additionally, the Company increased capacity deployment on routes originating from Shanghai and was granted 5 new domestic routes traffic rights, including Shanghai-Guangzhou and Shanghai-Kunming. These efforts would help develop Shanghai into an important gateway and base for Air China's future passenger and cargo growth.

Fleet Expansion: In the first half of the year, a total of 9 aircraft were added to the fleet. As of 30 June 2005, the Company (including Air China Cargo) operated a fleet of 160 aircraft, including 127 Boeing aircraft, 28 Airbus aircraft and 2 business jets. The average age of the fleet was 8.3 years.

Market Development: The Company actively increased its marketing efforts for interline sales. It increased the number of connecting-flights and established a pricing and ticketing system for transit and interline passenger sales. In 2003, 2004 and the first half of 2005, the revenue from connecting flights were RMB 2.7 billion, 7.6 billion and 3.8 billion respectively and the Company expected that the segment will continue to grow at a relatively fast pace. Additionally, the Company has focused on direct sales and has newly contracted with 458 major corporate clients. The popularity of electronic tickets also increased steadily. The Company started to accept electronic tickets at 60 domestic airports and Hong Kong. Preparation for the sale of electronic tickets in the United States was completed. The Air China Companion Club continued to expand and its membership reached 2,470,000 at the end of June 2005.

The Company continued to focus on industry cooperation resulting in code-sharing arrangements with 18 airlines to date. In May 2005, Air China and Cathay Pacific Airways signed an agreement to operate code-share flights between Hong Kong and Beijing. The agreement further strengthens the strategic cooperative relationship between the two parties.

Chairman Mr. Li Jiaxiang concluded, "The Company's mission is to become the most recognized by domestic and international mainstream passengers, the most valuable, the most profitable and the most globally competitive airline among all Chinese carriers. Despite the surge in jet fuel prices, the aviation industry in China maintains its rapid growth and the Company expects to sustain its profitability. The Company will continue to invest in its operations in order to build economies of scale to enhance profitability, strengthen its ability to differentiate itself from its competitors and to maximize the return to its shareholder and the value of the Company."

About Air China

Air China Limited (Air China) is the national flag carrier of China and a leading provider of air passenger, air cargo and airline-related services in China. It is primarily based in Beijing with its operational center and extensive route network serving major Chinese cities and international destinations. It has the largest share of air transportation business (as measured by total traffic volume) for the Beijing Capital International Airport. It also provides airline-related services, including aircraft maintenance, ground services and in-flight catering services in Beijing, Chengdu, Hong Kong and other locations through its own business units and joint ventures. As of 30 June 2005, it operated a fleet of 160 aircraft, serving 72 domestic and 36 international and regional destinations. Air China was listed on the Hong Kong Stock Exchange and the London Stock Exchange on 15 December 2004 under codes 0753 and AIRC respectively. On 4 August 2004, Air China was designated as the sole official airline partner of the Beijing Olympic Games.

Disclaimer

This press release contains projections and forward-looking statements that reflect the company's current views with respect to future events and financial performance. These views are based on current assumptions which are subject to various risks and which may change over time. No assurance can be given that future events will occur that projections will be achieved, or that the company's assumptions are correct. Actual results may differ materially from those projected.

Notice: An archived webcast to discuss Air China's results will be posted on 7 September 2005, on the Company's website at www.airchina.com.cn.