#1China Airlines 2019 Investor Conference August 23, 2019 TSE : 2610 CHINA AIRLINES EAM.#2Legal Disclaimer CHINA AIRLINES EAM . • The information contained in this presentation, including all forward-looking information, is subject to change without notice, whether as a result of new information, further events or otherwise, and China Airlines (the "Company") undertakes no obligation to publicly update or revise the information contained in this presentation. No guarantees regarding the completeness, accuracy, and reliability of information contained are made explicitly or implicitly. They are not intended to represent complete statement of the Company, industry or future development. 2#3Agenda 1. 1st Half 2019 Operating Results 2. Aviation Industry Outlook 3. Passenger Performance and Strategies 4. Cargo Performance and Strategies 5. Operating Fleet CHINA AIRLINES EAM 3#4CHINA AIRLINES TEAM 1st Half 2019 Operating Results 4#5Operating Performance Consolidated Financial Statistics Operating Revenue Net Operating Income 1st Half 2018 1st Half 2019 810.11 832.98 TWD 100 Million YoY % 2.82% 11.98 13.34 11.35% Net Income (Loss) After Tax 4.03 -4.38 Net Income (Loss) Attributable to 1.89 -6.86 Owners of the company Earnings (Losses) Per Share (NT$) 0.03 -0.13 - Financial Statistics (CI only) TWD 100 Million (Exclude adopting IFRS 16 "Leases" impact) 1st Half 2018 1st Half 2019 YoY % Net Income (Loss) Attributable to 1.89 -6.86 Owners of the company Reconcile adopting IFRS 16 "Leases" impact 0 3.95 Adjusted Net Income Attributable to 1.89 -2.91 Owners of the company CHINA AIRLINES 5#6Composition of Op. Revenue 1st Half 2018 TWD 71.16 Billion Other Op. Revenue 5% Other Op- Revenue 5% 1st Half 2019 TWD 72.01 Billion Cargo Revenue 30% Passenger Revenue 65% Cargo Revenue 29% Passenger Revenue In the first half of 2019, Passenger, Cargo and other operating revenues accounted for 66%, 29% and 5% respectively. CHINA AIRLINES 66% 6#7Composition of Op. Expenses 1st Half 2018 TWD 71.12 Billion 1st Half 2019 TWD 72.17 Billion Pax. Service Insurance 0.2% Others 3.3% 4.0% Sales & General Adm. 4.0% Maintenance 12.3% Fuel 31.8% Rental& Depreciation 17.1% Personnel 14.0% Insurance Pax. Service 0.2% 4.0% Others 3.5% Sales & General Adm 4.3% Maintenance 13.4% Airport & Ground Handling 13.3% Rental& Depreciation 16.8% Personnel 13.8% Fuel 30.5% Airport & Ground Handling 13.5% In the first half of 2019, Fuel cost accounted for 30.5% of operating expenses mainly due to the decrease in oil prices CHINA AIRLINES 7#8Changes in Op. Income Rental, Depreciation & Pax. Revenue +14.01 Cargo Fuel Insurance Revenue -7.11 -6.25 -0.06 Other Op. Revenue +1.58 Airport & Ground Handling +2.77 Maintenance +9.42 0.42 1st Half 2018 Net Op. Income Op. Revenue ▲ 8.48 Op. Expenses 10.50 Net Op. Income ▼2.02 CHINA AIRLINES Personnel +0.85 TWD 100 Million Sales & General Adm. +3.01 Other Op. Cost +0.76 -1.60 1st Half 2019 Net Op. Loss 8#9Financial Risk Management - Fuel Fuel Cost 1st Half 2018 1st Half 2019 YoY% Jet Fuel (MOPS) USD/BBL 83.68 78.05 -6.7% Fuel Consumption 10KBBL 865.13 854.58 -1.2% Fuel Expend TWD/100 Million 225.98 219.65 -2.6% Hedging Loss (Gain) TWD/100 Million. -0.03 0.05 Total Fuel Cost TWD/100Million 225.95 219.70 -2.6% Fuel Hedging Year 1st Half 2019 CHINA AIRLINES Hedging% 2.5% 6#10Financial Risk Management- Currency of Revenue and Expenditure 1st Half 2018 1st Half 2019 Rev. Exp. Rev. Exp. 100% 4% 5% 13% 2% %%%%% 2% 2% 13% 2% 2% 2% 3% 6% 4% 7% 6% 6% 7% 7% 8% 9% 46% 42% 14% 15% 50% 49% 47% 40% 37% 90 0% TWD USD JPY CNY HKD ■ EUR Others CHINA AIRLINES 10#11CHINA AIRLINES TEAM Aviation Industry Outlook 11#12Passenger Traffic Continues to Grow • According to IATA forecast, global RPK growth is slowing down, the growth rate of Asia-Pacific is larger than global average with similar trend. • The growth rate of global and Asia-Pacific traffic in 2019 are expected to be 5% and 6.3% respectively. RPK,% YOY ―Global Asia Pacific 15 10.9 10.9 10.1 9.5 10 6.9 6.3 8.1 7.4 7.4 7.4 5 6 5.0 0 2014 2015 2016 2017 CHINA AIRLINES 2018 2019F Source: IATA Statistics Fact Sheet 12#13Air Cargo Growth Slows Down . Global and Asia-Pacific FTKs have grown by 3.4% and 1.7% respectively in 2018. • IATA expects the growth rate of global FTKs in 2019 will be flat and the Asia-Pacific is expected to be negative growth. FTK, % YOY -Global-Asia Pacific 15 9.7 10 5.8 9.8 5 3.6 3.4 2.3 5.3 0 0 1.9 2.1 1.7 2014 2015 2016 2017 2018 2019F -5 -10 CHINA AIRLINES Source: IATA Air Freight Forecast 13#14CHINA AIRLINES TEAM Passenger Performance and Strategies 14#15Passenger Performance Revenue TWD 46.36 Billion TWD 47.76 Billion Composition by Region Trans Pacific Ocean 15% Australia /New Zealand 6% Europe 9% ▲ 3.0% 1st Half 2018 1st Half 2019 Southeast Asia 18% Hong Kong 7% Mainland China 15% Northeast Asia 30% Passenger revenue increased by 3%, reaching TWD 47.76 billion in the first half of 2019. Northeast Asia accounted for the largest share (30%) of revenue, followed by Southeast Asia with revenue share of 18%. CHINA AIRLINES 15#16Passenger Operation Index ASK (MN) Load Factor Yield (TWD) 79.8% 78.9% 2.32 2.24 ▲ 0.9ppt ▲ 3.6% 26,196 25,821 ▼ 1.4% 1st Half 2018 1st Half 2019 1st Half 2018 1st Half 2019 1sth Half 2018 1st Half 2019 ASK decreased by 1.4% while the load factor and yield increased by 0.9ppt and 3.6% respectively in the first half of 2019. CHINA AIRLINES 16#17• Market Outlook Regional Market Northeast Asia Taiwan outbound flow to NEA region continues to grow. The extra or charter flights to Northeast Asia will be arranged to generate more revenue. Mainland China Mainland China market is expected to have the negative growth due to the latest Restricted Policy. Southeast Asia . Long-haul Market Trans Pacific Ocean The travel volume between Taiwan and North America keeps growing. Aggressive Ontario/Los Angeles 17 flights/week offer better service and gain more market share. Europe Demand stably grows in Taiwan outbound market with Direct flight service. . Inbound visitors from Southeast Asia increase substantially resulting from the implementation of New Southbound Policy. CHINA AIRLINES Australia & New Zeeland Increase frequency to maintain competitive edge. 17#18Secure Taiwan Market by Multiple Brands In response to intense market competition, China Airlines established Tigerair Taiwan to differentiate products from traditional airlines in order to achieve competitive advantage and create positive synergy. Operate high-end market by elevating the quality of products and service Regional Flight Within 4 hours Long-haul Flight More than 4 hours Full Service Low Cost Full Service Low Cost CHINA AIRLINES CHINA AIRLINES & Taichung International Airport Operate the low cost market through the young and energetic brand image tigerair 台灣虎航 tigeral -tige 18#19Flight Networks Europe 22 Flights per week with 5 destinations CHINA AIRLINES 119 Flights per week with 28 destinations 232 Flights per week with 17 destinations China Northeast Asia Southeast Asia/ Hong Kong North America 37 Flights per week with 6 destinations 293 Flights per New Zealand/ Australia 22 Flights per week with 4 destinations week with 15 destinations As of W19 19#20Cooperation with Other Airlines China Airlines works with more than 20 airlines worldwide to expand global flight network and share operation resources. KLM Air Europa WESTJET 1 JAL JAPAN AIRLINES CSACZECH AIRLINES CHINA EASTERN 上海航空公司 KOREAN AIK A DELTA AIRFRANCE/ Alitalia SHANGHAI AIRLINES Philippine Airlines Vietnam Airlines Emalaysia AIRLINES Bangkok Airways ROYAL BRUNEI AIRLINES XIAMENAIR CHINA AIRLINES Garuda Indonesia QANTAS HAWAIIAN AIRLINES- 20 20#21CHINA AIRLINES TEAM Cargo Performance and Strategies 21#22Cargo Performance Revenue TWD 21.64 Billion TWD 20.93 Billion ▼3.3% 1st Half 2018 1st Half 2019 Composition by Region Australia/ New Zealand 2% Europe 12% Northeast Asia 7% Mainland Hong Kong 1% Trans Pacific Ocean 54% China 7% Southeast Asia 17% Cargo revenue totaled TWD 20.93 billion, a 3.3% decreased, in the first half of 2019. Trans Pacific Ocean accounted for the largest share (54%) of revenue, followed by Southeast Asia and Europe with revenue share of 17% and 12% respectively. CHINA AIRLINES EAM 22 22#23Cargo Operation Index FATK (MN) Load Factor Yield (TWD) 3,938 3,852 ▼ 2.2% 70.5% 8.25 65.8% 7.79 4.7ppt ▲ 5.9% 1st Half 2018 1st Half 2019 1st Half 2018 1st Half 2019 1st Half 2018 1st Half 2019 FATK decreased by 2.2% and the load factor dropped 4.7 ppt while yield grew by 5.9% in the first half of 2019. CHINA AIRLINES 23#24Cargo Performance - Where We Are In 2018, China Airlines Cargo ranked globally NO. 6 in terms of tonnage carried and NO. 12 in terms of FRTK basis Top Air Cargo Carriers in 2018 Rank Airline by Tonnage (in thousands) Airline by FRTK (in millions) 1 Emirates (1) 2,609 Emirates (1) 12,713 2 Qatar Airways (3) 2,262 Qatar Airways (2) 12,695 3 Federal Express (2) 2,159 Cathay Pacific Airways (3) 11,284 4 Cathay Pacific Airways (4) 1,828 Federal Express (4) 8,455 5 United Parcel Service (5) 1,548 Korean Air (5) 7,815 (YOY +3.4%) 6 China Airlines (7) 1,512 Lufthansa (7) 7,391 7 Korean Air (6) 1,510 Cargolux (6) 7,322 8 Turkish Airlines (9) 1,302 Singapore Airlines (8) 6,491 9 Singapore Airlines (8) 1,167 United Parcel Service (9) 6.252 10 Lufthansa (10) 969 Air China (12) 5,912 11 Asiana Airlines (11) 933 Turkish Airlines (14) 5,860 12 Cargolux(15) 850 China Airlines (10) 5,804 (YOY +1.1%) CHINA AIRLINES Source: IATA 24#25Global Cargo Market Trend Year-over-year FRTK (traffic) and FATK (capacity) growth 12% 10% 8% 6% FATKS Growth 4% 2% 0% -2% -4% FRTK Growth 3.3% -2.0% 3Q12 1Q13 3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 Air Cargo growth is expected to weaken in 2019 due to recent escalating China-US trade war and overstock resulting from unexpected cargo growth demand during past 2 years. CHINA AIRLINES Sources: IATA Monthly Statistics, Boeing Market Analysis 25#262019 Business Opportunity-Project Shipment • Continuously focusing on recurrent traffic Semiconductor, Capital Equipment, Electronic products/semi-products, Functional textile, auto parts, Pharmaceuticals, Medical Equipment, Fresh produces, e-Commerce, Aircraft materials Actively explore potential cargo . Industrial computers/servers Wearing devices Internet of Things development NOKIA Roche ASML AIRBUS CHINA AIRLINES acer p ASUS SAMSUNG adidas ebay €2 Abbott BOEING APPLIED MATERIALS Pfizer Nikon htc Alibaba.com TESLA TOYOTA Canon tsmc NIKE 26#27Freighter Network Planning Deploy regional networks such as Southeast Asia and India and optimize the long- haul flight revenues to Europe and America. 阿姆斯特丹法蘭克福 盧森堡,布拉格、 南京。 上海 重慶 台北 廣州 門 深圳 台北 香港 河內 德里 |杜拜 曼谷 胡志明市 馬尼拉 一檳城 吉隆坡 6 新加坡 雅加達 Flt/week Europe 中華航空·運航線 CHINA AIRLINES Eff. From 2019JUL 安克拉治 西雅圖 舊金山 洛杉磯 達拉斯· 芝加哥 *哥倫布 紐約 亞特蘭大 休士頓 邁阿密 名古屋含 大阪 東 $53 Flt/week Regional NEA 5+PRC 14 HKG 15+SEA 19 36 Flt/week Trans Pac 27#28Interline Cooperation Cooperate with other airlines to develop Mid-Asia and Latin American markets. CHINA AIRLINES CARGO Startup SOUTH AFRICAN AIRWAYS Aerolíneas Argentinas Vietnam Airlines CHINA CARGO CHINA SOUTHERN CSACZECH AIRLINES CARGO CENTURION CARGO A DELTA CARGO AEROFLOT Ruslan Airtings AEROMEXICO. cargo the AIRFRANCE / KLM Alitalia CHINA AIRLINES CARGO KSREAN AIR CARGO Cargo NORTH AMERICA Emirates LATAM CARGO CENTRAL AMERICA SOUTH AMERICA EUROPE ASIA MIDDLE EAST TPE AFRICA OCEANIA 28#29Challenge: China-US Trade War China-US Trade war Effect on TW Many overseas Taiwanese businesses have taken steps to adjust their production by relocating funds back to Taiwan or Southeast Asia to diversify risk amid the China-US trade dispute. 電子下游組装代工廠 「產線搬遷 廣達 產品 和碩 產品 緯創 產品 伺服器 網通產品 主要生產基地 伺服器 中山廠 主要生產基地 主要生產基地 上海廠 蘇州廠 可能搬遷地點 【菲律賓蘇比克灣 可能搬遷 SOURCE: 工商時報 經濟日報 可能搬遷地點 台灣 台灣新店 The impact of China-US trade war on air cargo transport: . • . Short term: Urgent order shipment due to tariff issue Mid term: Air cargo demand reduced while overstock Long term: Cargo volume is expected back to normal as agreement is made by US and Chinal Counter Measure of CI • • Cargo supply adjustment to cater to market needs Flexible network planning for potential market Aggressive development of solid target suppliers CHINA AIRLINES 製表:吳雯 29#30CHINA AIRLINES TEAM Operating Fleet 30#31Operating Fleet as of August 2019 Aircrafts in storage are excluded. Aircraft Type 777-300ER 747-400 A350-900 Owned On Lease 10 4 14 - A330-300 737-800 747-400F (Freighter) Number of aircraft in fleet 13 10 4 15 18 53 35 To maximize fuel efficiency, Cl is expected to receive the first of 3 777F in 2020 and the first of 14 leased A321neo in 2021. CHINA AIRLINES 31#32Thank you 2019.08 China Airlines | No.1, Hangzhan S. Rd., Dayuan Dist., Taoyuan City, Taiwan TEL | 03.399.8888 CHINA AIRLINES EAM.