BOOSTING UP 2017 ANNUAL REPORT - China Southern Airlines

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H Share Stock Code: 1055A Share Stock Code: 600029ADR Code ZNHBOOSTINGUP 2017ANNUAL REPORT


ABOUT USChina Southern Airlines Company Limited, a member of theSKYTEAM, with its headquarter located in Guangzhou, and thelogo of which is a red kapok on the blue vertical stabilizer, rankedthe first among all Chinese airlines in terms of the largest fleet,the most developed route network, the largest passenger capacity.By the end of the reporting period, the Company had a fleetof 754 passenger and cargo aircraft, ranking the first in Asiaand the fourth worldwide in terms of fleet scale,and is the first airlines that operating both Airbus A380 andBoeing 787 throughout the world.

RELEASING THE POTENTIALCONTENTSABOUT US467810DefinitionsImportant InformationCompany ProfileCorporate InformationCompany Business SummaryOPERATING RESULTS20 Principal Accounting Information and FinancialIndicators22 Summary of Operating Data27 Summary of Fleet Information30 Highlights of the Year34 Management Discussion and Analysis68 SIGNIFICANT EVENTSCORPORATE GOVERNANCE77 Report of Directors95 Changes in the Share Capital, Shareholders’Profile and Disclosure of Interests101 Directors, Supervisors, Senior Management andEmployees120 Corporate Governance Report130 CORPORATE BOND134 RISK MANAGEMENT ANDINTERNAL CONTROL138 SOCIAL RESPONSIBILITYFINANCIAL REPORTFinancial Statements Prepared under InternationalFinancial Reporting Standards144 Independent Auditor’s Report150 Consolidated Income Statement151 Consolidated Statement of ComprehensiveIncome152 Consolidated Statement of Financial Position154 Consolidated Statement of Changes in Equity155 Consolidated Cash Flow Statement156 Notes to the Financial Statements237 SUPPLEMENTARY FINANCIALINFORMATION240 FIVE YEAR SUMMARY

China Southern Airlines Company LimitedANNUAL REPORT 2017DEFINITIONS4DefinitionsUnless the context otherwise requires, the following terms should have the following meanings in this report:Company, CSA, China Southern AirlinesChina Southern Airlines Company LimitedGroupChina Southern Airlines Company Limited and its subsidiariesCSAHXiamen AirlinesChina Southern Air Holding Limited Company, formerly known as China Southern AirHolding CompanyXiamen Airlines Company LimitedGuizhou AirlinesGuizhou Airlines Company LimitedZhuhai AirlinesZhuhai Airlines Company LimitedShantou AirlinesShantou Airlines Company LimitedChongqing AirlinesChongqing Airlines Company LimitedHenan AirlinesChina Southern Airlines Henan Airlines Company LimitedSAGASouthern Airlines General Aviation Co., Ltd.Hebei AirlinesHebei Airlines Company LimitedJiangxi AirlinesJiangxi Airlines Company LimitedFinance CompanySouthern Airlines Group Finance Company LimitedGSCChina Southern Airlines Group Ground Services Co., Ltd.CSAGPMCChina Southern Airlines Group Property Management Company LimitedNan LungNan Lung Holding LimitedSACCShenzhen Air Catering Co., Ltd.SACMSouthern Airlines Culture and Media Co., Ltd.SPVChina Southern Airlines No. 1 Lease (Tianjin)China Southern Airlines No. 2 Lease (Tianjin)China Southern Airlines No. 3 Lease (Tianjin)China Southern Airlines No. 4 Lease (Guangzhou)China Southern Airlines No. 5 Lease (Tianjin)China Southern Airlines No. 6 Lease (Tianjin)China Southern Airlines No. 7 Lease (Tianjin)China Southern Airlines No. 8 Lease (Tianjin)China Southern Airlines No. 9 Lease (Guangzhou)China Southern Airlines No. 12 Lease (Tianjin)China Southern Airlines No. 13 Lease (Tianjin)China Southern Airlines No. 14 Lease (Tianjin)American AirlinesAmerican Airlines, Inc.Sichuan AirlinesSichuan Airlines Corporation LimitedPRCThe People’s Republic of ChinaCSRCCommission China Securities RegulatoryNDRCNational Development and Reform Commission

China Southern Airlines Company LimitedANNUAL REPORT 2017DEFINITIONSABOUT US5SASACState-owned Assets Supervision and Administration Commission of the State CouncilCAACGeneral Administration of Civil Aviation of ChinaSkyTeamSSESkyTeam Alliance, one of the three major airline alliances in the world. Please refer tothe website for more details about the SkyTeam AllianceShanghai Stock ExchangeStock ExchangeThe Stock Exchange of Hong Kong LimitedArticles of AssociationArticles of Association of China Southern Airlines Company LimitedListing RulesSFOThe Rules Governing the Listing of Securities on The Stock Exchange of Hong KongLimitedThe Model Code for Securities Transactions by Directors of Listed Issuers as set out inAppendix 10 of The Rules Governing the Listing of Securities on The Stock Exchange ofHong Kong LimitedCorporate Governance Code as set out in Appendix 14 of The Rules Governing theListing of Securities on The Stock Exchange of Hong Kong LimitedSecurities and Futures Ordinance (Chapter 571 of the laws of Hong Kong)Available Seat Kilometers or “ASK”the number of seats made available for sale multiplied by the kilometers flownAvailable Tonne Kilometers or “ATK”the tonnes of capacity available for the transportation multiplied by the kilometers flownAvailable Tonne Kilometers – passengerthe tonnes of capacity available for passenger multiplied by the kilometers flownAvailable Tonne Kilometers – cargothe tonnes of capacity available for cargo and mails multiplied by the kilometers flownRevenue Passenger Kilometers or “RPK”Revenue Tonne Kilometers – passengeri.e. passengers traffic volume, the number of passengers carried multiplied by thekilometers flowni.e. total traffic volume, the tonnes of revenue load (for passengers and cargo) multipliedby the kilometers flowni.e. cargo and mail traffic volume, the tonnes of revenue load for cargo multiplied by thekilometers flownthe tonnes of revenue load for passenger multiplied by the kilometers flownAircraft Utilization RateFlight hours that aircraft can service during specified timePassenger Load FactorRPK expressed as a percentage of ASKRevenue flight hoursFlighting hours of commercial flyingOverall Load FactorRTK expressed as a percentage of ATKYield per RPKrevenue from passenger operations divided by RPKYield per RFTKrevenue from cargo operations divided by RFTKModel CodeCorporate Governance CodeRevenue Tonne Kilometers or “RTK”Revenue Tonne Kilometers – cargo or “RFTK”

China Southern Airlines Company LimitedANNUAL REPORT 2017IMPORTANT INFORMATION6Important InformationIThe board of directors (the “Board”) and the supervisory committee (the “Supervisory Committee”) of the Companyand its directors (the “Directors”), supervisors (the “Supervisors”) and senior management warrant the truthfulness,accuracy and completeness of the content contained in this annual report, and which does not contain inaccurate ormisleading statements or have any material omission, and jointly and severally accept full legal responsibility.IIKPMG issued the independent auditor’s report with unqualified auditor opinion to the Company.IIIMr. Wang Chang Shun (Chairman and the responsible person of the Company), Mr. Tan Wan Geng(person in charge of accounting, Vice Chairman and President of the Company), Mr. Xiao Li Xin (theresponsible person of the accounting department, Executive Vice President, Chief Accountant andChief Financial Officer of the Company) warrant the truthfulness, accuracy and completeness ofthe financial statements contained in this annual report.IVVVIVIIVIIIThe Board recommends the payment of a dividend of RMB0.1 (inclusive of applicable tax)per share for the year ended 31 December 2017, totalling approximately RMB1,009 millionto the shareholders based on the Company’s 10,088,173,272 issued shares. A resolution forthe dividend payment will be submitted at the 2017 annual general meeting of the Companyfor consideration. If approved, the dividend is expected to be paid to the shareholders by theCompany on or before Friday, 31 August 2018.Forward-looking statements included in this report, including future plans and developmentstrategies, do not constitute a guarantee of the Company to investors. Investors shall be aware of therisks of investment.During the reporting period, neither the controlling shareholder of the Company, nor any of its connectedpersons has utilized the non-operating funds of the Company.During the reporting period, the Company did not provide external guarantees in violation of any specifieddecision-making procedures.During the reporting period, the Company did not have any material risks. The Company has detailed potential risks in thisreport. Please refer to “Risk Factors Analysis” under “Management Discussion and Analysis”.

China Southern Airlines Company LimitedANNUAL REPORT 2017CORPORATE PROFILEABOUT US7Corporate ProfileThe Group is one ofthe largest airlines in thePRC.In 2017, the Group ranked the firstamong all Chinese airlines in terms ofits fleet, network and annual volumeof passengers. As of 31 December2017, the Group had a fleet of 754passenger and cargo aircraft, includingthe Boeing 787, 777, 747 and 737series, as well as the Airbus 380, 330and 320 series, ranking first in Asiaand fourth worldwide in terms of fleetscale and number of passengers. Thegeneral strategic goal of the Group is todevelop itself into an international firstclass aviation transportation enterprisewith an extensive route network andwe have formed a developed networkcovering China, and the rest of Asia, andeffectively connecting Europe, America,Australia and Africa. As at 31 December2017, the Group operated more than2,000 flights daily flying to over 200destinations in over 40 countries andregions around the world, providing over300,000 seats to the market. Throughclose cooperation with members fromthe SKYTEAM, the Group connected1,062 destinations in 177 countriesand regions in the world. In 2017, theGroup’s volume of passengers amountedto nearly 126 million, ranking the Groupthe first among Chinese airlines for 39consecutive years, and maintaining itstop position in Asia.Based in Guangzhou, the Group has16 branches, including Beijing andShenzhen and 6 majority-held civilaviation subsidiaries, including XiamenAirlines, Shantou Airlines, ZhuhaiAirlines, Guizhou Airlines, ChongqingAirlines and Henan Airlines. TheGroup has set up SAGA in Zhuhai andestablished 22 domestic offices in citiessuch as Hangzhou and Qingdao. It alsoestablished 68 overseas offices in citiesincluding Sydney and New York.

China Southern Airlines Company LimitedANNUAL REPORT 2017CORPORATE INFORMATION8Corporate InformationChinese Name:Place of Business:中國南方航空股份有限公司278 Ji Chang Road, Guangzhou, Guangdong Province, PRCChinese Short Name:Place of Business in Hong Kong:南方航空Unit B1, 9th Floor, United Centre,95 Queensway, Hong KongEnglish Name:China Southern Airlines Company LimitedEnglish Short Name:Website of the Company:www.csair.comCSNAuthorized Representative under the Listing Rules ofthe Stock Exchange:Legal Representative:Tan Wan Geng and Xie BingWang Chang ShunBoard and Company Secretary:Xie BingSecurities Affairs Representative:Xu YangShareholder Enquiry:Company Secretary BureauTelephone: 86-20-86124462Fax: 86-20-86659040E-mail:[email protected] Shareholder:China Southern Air Holding Limited CompanyPrincipal Bankers:Agricultural Bank of ChinaChina Development BankBank of ChinaIndustrial & Commercial Bank of ChinaChina Construction BankDesignated Newspapers for Information Disclosure(A Shares):China Securities Journal, Shanghai Securities News, SecuritiesTimesDesignated Website for Information Disclosure(A Shares) Website for Information Disclosure(H Shares):278 Ji Chang Road, Guangzhou, Guangdong Province, PRCwww.hkexnews.hkRegistered Address:Annual report Available for Inspection:Unit 301, 3/F, Office Tower Guanhao Science Park Phase I,12 Yuyan Street Huangpu District, Guangzhou, GuangdongProvince, PRCCompany Secretary BureauAPP:China Southern AirlinesWeChat Official Account:China Southern AirlinesSina Weibo: QR Code

China Southern Airlines Company LimitedANNUAL REPORT 2017CORPORATE INFORMATIONABOUT US9Place of Listing of A Shares:Stock Code of N Shares:Shanghai Stock ExchangeZNHShort Name of A Shares:南方航空Stock Code of A Shares:600029A Share Registrar:China Securities Depository and Clearing Corporation LimitedShanghai BranchFloor 36, China Insurance Building,166 Lu Jia Zui East Road, Shanghai, PRCPlace of Listing of H Shares:N Share Registrar:BNY Mellon Shareowner ServicesP.O. Box 505000,Louisville, KY40233-5000, USADomestic Legal Adviser:Z&T Law FirmOverseas Legal Adviser:DLA Piper Hong KongDomestic Auditor:The Stock ExchangeKPMG Huazhen LLPShort Name of H Shares:Address of Domestic Auditor:China South AirStock Code of H Shares:01055H Share Registrar:Hong Kong Registrars Limited17M Floor, Hopewell Centre, 183 Queen’s Road East,Wanchai, Hong KongPlace of Listing of N Shares:New York Stock ExchangeShort Name of N Shares:China Southern Air8th Floor, KPMG TowerOriental Plaza1 East Chang An AvenueBeijing, ChinaSigning Accountants of Domestic Auditor:Wang Jie, Guo Wen MinOverseas Auditor:KPMGAddress of Overseas Auditor:8th Floor, Prince’s Building10 Chater RoadCentral, Hong Kong

China Southern Airlines Company LimitedANNUAL REPORT 2017COMPANY BUSINESS SUMMARY10Company Business SummaryI. The Principle Businessand Operating Model ofthe Company and theIndustry Summaryduring the ReportingPeriod(II) Development of AviationIndustry and IndustrialPosition of the Company(I) Principle Business2017 witnessed stable recovery ofworld economy and strong growth inaviation transport demands. Accordingto the data released by International AirTransport Association, in 2017, globalairlines have transported 4.1 billionpassengers and 59.9 million tons ofcargo, achieving a net profit of US 34.5billion, hitting a new record high. As ofthe end of 2017, 2017 global passengeraviation demand and aviation capacityrespectively increased by 7.6% and 6.3%on a year on year basis. The passengerload factor increased by 0.9 percentagepoint to 81.4%, hitti