I am pleased to report to the Shareholders the operating results of the Group for the year ended 31 December, 1997 (in accordance with International Accounting Standards). Turnover was RMB 8.574 billion representing an increase of 17.7% over the corresponding period in 1996. Profit after taxation and minority interests increased 7.5% over 1996 to RMB 635 million. Earnings per share was RMB 0.14. During the year, the Company achieved an aggregate of 1.29 billion tonne-kilometers, passenger carried amounted to 6.995 million and cargo and mail traffic was 402.0 million tonne-kilometers.
The year of 1997 had a very special meaning to the Company. In February 1997, the Company successfully listed its H Shares on both The Stock Exchange of Hong Kong Limited and the New York Stock Exchange. In October 1997, the Company also issued A Shares and listed on the Shanghai Stock Exchange in November 1997 making the Company the first PRC airline to list its equity securities on three stock exchanges.
In the meantime, the Company procured a series of achievements in the aviation market:
In 1997, the Company achieved the best historical level of flight safety and attained its flight safety record for the fourth year. The Company was also awarded the "Golden Roc Award", the highest award of the Chinese airlines for its flight safety record.
According to the 1997 service quality survey conducted by CAAC, the service quality of the Company ranked first amongst PRC airlines for the fourth consecutive year.
The air traffic operation of the Company experienced steady growth. The Company expanded the size of its aircraft fleet by acquiring two A340 aircraft and three Boeing MD-90 aircraft. The route between Shanghai and San Francisco was introduced while some of the domestic routes were re-opened and newly opened, to rationalize the route distribution and adjust the route structure efficiently. At the same time, the Company adopted various marketing measures such as accomplishing the management of sub-class program and introducing that to domestic routes; entering into Special Proportion Agreement (SPA) with various airlines and issuing "Silver Swallow Card" to the customers. The above measures enable the Company to improve its sales management system to increase its competitiveness in the market.
The Company reduced its fuel costs through measures such as selecting fuel suppliers (which can supply fuel with favourable prices) through tenders and making use of the difference in jet fuel prices to carry fuel in return flights. The Company controlled administrative expenses by adopting stringent approval system. In addition, the Company used the proceeds of listing efficiently which reduced financial costs. Spot/forward transactions of various foreign currencies (apart from U.S. dollars and Japanese Yen) has been introduced to reduce foreign exchange losses.
The construction of a double wide body aircraft maintenance hangar was completed and started to operate in October 1997 which enables the Company to enhance its maintenance ability.
In 1998, the Company will face golden opportunities for expansion as well as severe tests and challenges. After the domestic economy has successfully achieved "soft landing", it will maintain rapid and steady growth. As the tourist industry will continue to develop, airport facilities and air traffic control system have been gradually improved, the prominent position and function of air traffic will further be enhanced and the overall operating environment will become more and more favourable. Internally, the development in 1997 has enhanced the strength and the size of the Company. With a year of operation in the capital market, the Company has accumulated experiences in the improvement of management, the enhancement of quality, the renewal of concepts and the acceleration of development which allow the Company to develop with better qualities. However, we are also aware that supply in both international and domestic aviation markets still exceed demand, foreign airlines have increased the number of flights flown to China, especially Shanghai. In addition to the keen competitions in domestic aviation market, the Company will also face challenge from other means of transport.
In view of the passenger-oriented market, our operations will continue to focus on cargo and passengers demand. Overall, the Company in 1998 will place importance on safety, income, costs and service and focus on the followings:
1. to adhere to the development strategy of the Company: safety with priority, reformation as motivation, market driven and effectiveness as the centre
2. to strengthen and enhance the reputation of the Company: to ensure air traffic safety; to strive for on-time operations; and to raise service standard
3. to further improve the production and operation management: to streamline the organization; to control the increase of the number of staff; and to improve the computerised management system (departure control system, income management system and information management system)
4. to increase overall earnings: to improve sales strategies; to control selling expenses; to develop cargo operation; and to introduce business co-operation
5. to control costs by strict financial management: to further increase daily utilisation of aircraft; to improve the maintenance management and aircraft spare parts inventory control; to reduce non-operational expenses; and to cut administrative expenses
6. to expand with low costs by consolidation and alliance: to complete the legal procedures of acquisition of China General Aviation Company.
Finally, I would like to take this opportunity to express my gratitude on behalf of the Board for the contribution of our diligent staff and the support of shareholders to the Company. I believe with your support, the Company will have an even brighter future.
On behalf of the Board
Shanghai, the PRC, 20 April, 1998
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