China Southern Inks Pact To Operate Own Terminal At Beijing Capital Airport; Multi-Million Dollar Renovated Facility To Open In October `04.

Business Editors/Travel Writers

BEIJING--(BUSINESS WIRE)--Oct. 6, 2003

China Southern Airlines (NYSE: ZNH) (HKSE: 1055), the largest airline in The People's Republic of China, will own and operate its own terminal at Beijing Capital Airport.

The announcement was made here at the official contract signing between China Southern and Beijing Ground Service Co. Ltd., (a share holding company of Beijing Capital Airport).

The joint venture investment of RMB 18 Million ($2.1 Million USD) will create a new Beijing Capital China Southern Ground Service Co. Ltd., and the 50-50 split will give China Southern exclusive use of Terminal One at Beijing Capital Airport.

In addition, the new ground service company will handle all ground handling services of China Southern Air Holding Company's subsidiary or partner airline companies (China Southern Airlines, China Northern Airlines, Xinjiang Airlines, Xiamen Airlines and Sichuan Airlines).

Beijing Capital Airport's Terminal One -- which has remained generally vacant after the opening of the new Domestic/International terminal -- is slated for a major facelift.

Upon completion of the renovations and re-opening of the facility in October 2004, China Southern Airlines will be the only airline in China to exclusively own and manage its own airport terminal in China.

The announcement -- held at The Great Hall of the People -- comes at the 1st Anniversary of the new China Southern Air Holding Company, the parent group of China Southern Airlines and its subsidiary or partner airlines.

The Civil Aviation Administration of China (CAAC) Minister Yang Yuan Yuan attended the signing ceremony, as well as Mr. Yan Zhi Qing, President, China Southern Air Holding Company and Chairman, China Southern Airlines Co. Ltd.; Mr. Wang Chang Shun, Vice President, China Southern Air Holding Company and President, China Southern Airlines Co. Ltd.; Mr. Li Pei Ying, President, Beijing Capital Airport Group and Mr. Wang Jia Dong, President, Beijing Capital Airport Co. Ltd.

Representing the two parties during the contract signing were China Southern Airlines' Vice President Mr. Li Kun and Beijing Capital Airport Co. Ltd. Vice President Mr. Huang Gang.

Through its new joint venture partnership, China Southern Airlines obtained exclusive right to use Terminal One. All the main terminal facilities, even down to staff uniforms worn inside the terminal, will incorporate the China Southern Airlines' distinctive red kapok flow corporate logo.

All facilities within the terminal have been slated for refurbishment, including: information counters; check-in counters; boarding gates; baggage claim & security; First Class and Business Class lounges; special passenger service counters; delayed flight service areas; load & balance and flight connections.

The 50 check-in counters within the terminal will be redesigned to significantly shorten long queues.

Upon completion, the renovated China Southern Airlines' Terminal One is expected to manage an annual capacity of eight Million passengers.

After the merger was established in October 2002 of the three major Chinese airline groups, the China Southern Air Holding Company already set into motion a series of development strategies to further mesh the group's route resources -- creating major airport hubs in both Beijing and Guangzhou and gradually increasing flight frequencies to and from Beijing each year -- thus significantly increasing China Southern's market share in Beijing.

In 2002, China Southern Air Holding Company carried 5.6 Million passengers in and out of Beijing Capital Airport, including 150 daily inbound and outbound flights, accounting for 25% market share.

As China's economy continues to grow at a phenomenal pace, the rapid development in Beijing's local economy and the forthcoming International media exposure and attention with the upcoming 2008 Beijing Summer Olympic Games, anticipated passenger traffic volume at Beijing Capital Airport is expected to spike significantly.

The China Southern Air Holding Company estimates that it will transport 8 Million inbound and outbound passengers in 2008 and its re-designed Terminal One will clearly be able to satisfy the rapid development needs of the nation's largest airline.

At the signing ceremony, China Southern Chairman Yan said, "It is extremely important for China Southern Airlines to jointly run Terminal One at Beijing Capital Airport with Beijing Capital Airport Group. This new joint venture will help implement China Southern's hub strategy, optimize its Beijing route network and fully explore the excellent connections conditions in Beijing to better integrate the route resources of China Southern Airlines, China Northern Airlines and Xinjiang Airlines."

CAAC Minister Yang Yuan Yuan said, "It bears great significance in the reforming history of Chinese aviation industry for China Southern and Beijing Capital Airport to jointly operate the airport terminal."

Mr. Yang added that, "the consolidation of the three big airline groupings and the airport localization reforms are mainly aimed at the issues of system level reforms while current Chinese aviation reforms should divert its focus onto its internal operation mechanism."

"The CAAC is studying related proposals to adjust the relationship between the airport authorities and the Chinese carriers. Airport authorities should speed up their transformation from `operation style' to `management style'; introduce competition of airport ground services; create an `Airport Users Committee' to guarantee principal part positions to the airlines; allow carriers to establish their own service organizations inside the airport ... so the carriers can fully implement their commitment to various services. This will be helpful to resolve the most critical problem related to airport ground service quality demanded by passengers," said Minister Yang.

"Capital Airport is the largest airport in China. China Southern Airlines is the largest airline of China. The natural collaboration between the two nation's largest aviation enterprises should become a management example to the world of China's ever-developing aviation industry," added Minister Yang.

Airlines participating in running their own airport terminals are a popular trend in both America and Europe where "hub-and-spoke" networks are commonplace.

For example, Delta Air Lines and United Airlines own their own terminals at their city-hub airports. To successfully introduce such a hub strategy, it is critical for air carriers to establish a relatively independent ground service system.

Industry experts point out that the new strategic cooperation between China Southern Airlines and Beijing Capital Airport has shattered strategic competition patterns in the Chinese aviation industry and become an extremely significant industry-to-industry collaboration in China's aviation reformation process.

The largest airline in The People's Republic of China for the past 23 years, China Southern Airlines (www.cs-air.com/en) connects more than 80 cities around the globe. Major business and vacation destinations served in China include: Beijing, Chengdu, Guangzhou, Guilin, Hong Kong, Kunming, Shanghai, Shenzhen and Wuhan and as well as international service, including: Amsterdam, Bangkok, Fukuoka, Hanoi, Ho Chi Minh City, Islamabad, Kuala Lumpur, Jakarta, Los Angeles, Manila, Melbourne, Moscow, Osaka, Penang, Phnom Penh, Seoul, Singapore, Sydney and Tokyo.

For China Southern Airlines reservations and information, please contact your local travel agent.