Air China: Management discussion of Jul-2010 operating data

Traffic in the domestic and regional markets exhibited double-digit growth month-over-month. The robust demand also saw healthy growth in the cargo market. Both Revenue Freighter Tonne Kilometres (RFTK) and freighter tonnage carried continued to record growth year-over-year in all market. On a month-over-month basis, growth were recorded except regional routes.

Passenger capacity, measured in Available Seat Kilometers (ASK), grew 16.6% year-over-year. Passenger traffic, measured by Revenue Passenger Kilometers (RPK), rose 24.0% in July. Capacity on international and domestic routes increased by 18.2% and 14.4% year-over-year, respectively, while RPK rose by 25.8% and 21.6%, respectively. Capacity on regional routes increased by 43.1% year-over-year, with RPK up 55.3%. The passenger load factor was 83.1%, up 5.0 percentage points year-over-year. The passenger load factor for international, domestic and regional routes improved by 5.0, 4.9 and 6.4 percentage points year-over-year, respectively. (Please note that Shenzhen Airlines and Air Macau are not included in these figures.)

Cargo capacity, measured in Available Freighter Tonne Kilometres (AFTK), rose by 16.3% year-over-year. Revenue Freighter Tonne Kilometres (RFTK) and Freighter tonnage carried increased by 23.3% and 19.0%, respectively, compared with the same month in 2009. In July, the cargo load factor improved to 59.2%, an increase of 3.3 percentage points year-over-year.

During the month, a number of new routes were launched. The Company launched its daily Hanzhou-Hohhot-Hailar route and Chendu-Lhasa-Ali route with three flights a week on 1 July; the daily Hangzhou-Xian-Urumqi route started on 4 July.

In July, Air China adopted the new fare for first class and business class on 43 domestic routes and added discounted tickets for Premium Class. The adjusted price for Premium Class applies to ticketing of domestic routes after 1 July 2010 (inclusive) and travels after 15 July (inclusive).

During the month, the Company's average jet fuel purchase price at international airports was RMB4,972 per tonne, and the average purchase price of jet fuel for international flights at the top six Chinese airports was RMB5,288 per tonne, representing 13% and 11% year-over-year increases, respectively. The Company's average jet fuel purchase price for domestic flights was RMB6,042per tonne, an increase of 11% compared with June last year.

Air China purchased a total of 305,000 tonnes of jet fuel during the month at an average price of RMB5,626 per tonne, a year-over-year increase of 11%.

In July, the Company made the following adjustments to jet fuel surcharges:

During the month, the Company added four new aircraft, namely two B737-800s, one A321 and one business jet under custody. As of end-July, Air China operated a fleet of 280 aircraft.