#1China Airlines 2019 Investor Conference November 25, 2019 TSE : 2610 CHINA AIRLINES dp EAM#2Legal Disclaimer • 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. CHINA AIRLINES 2#3Agenda 1. Operating Results of First Three Quarters in 2019 2. Aviation Industry Outlook 3. Passenger Performance and Strategies 4. Cargo Performance and Strategies 5. Operating Fleet CHINA AIRLINES 3#4CHINA AIRLINES Operating Results of First Three Quarters in 2019 4#5Operating Performance - 3rd Quarter Consolidated Financial Statistics TWD 100 Million YoY % 2018 Q3 2019 Q3 Operating Revenue 451.97 430.05 -4.85% Net Operating Income 18.95 14.62 -22.85% Net Income After Tax 12.27 4.96 -59.58% Net Income Attributable to 10.81 3.40 -68.55% Owners of the company Earnings Per Share (TWD) 0.20 0.06 -70.00% Net Income Attributable to Owners of the company (Exclude adopting IFRS 16 "Leases" impact) Net Income Attributable to Owners of the company Reconcile adopting IFRS 16 "Leases" impact Adjusted Net Income Attributable to Owners of the company CHINA AIRLINES TWD 100 Million YoY % 2018 Q3 2019 Q3 10.81 3.40 -68.55% 0 1.73 10.81 5.13 -52.54% LO 5#6Operating Performance - First Three Quarters Consolidated Financial Statistics TWD 100 Million 2018 Q1-Q3 2019 Q1-Q3 YoY % Operating Revenue 1,262.07 1,263.02 0.08% Net Operating Income 30.93 27.96 -9.60% Net Income After Tax 16.29 0.58 -96.44% Net Income (Loss) Attributable to 12.69 -3.46 Owners of the company Earnings (Losses) Per Share (TWD) 0.23 -0.06 Net Income Attributable to Owners of the company (Exclude adopting IFRS 16 "Leases” impact) TWD 100 Million 2018 Q1-Q3 2019 Q1-Q3 YoY % Net Income (Loss) Attributable to 12.69 -3.46 Owners of the company Adjusted Net Income Attributable to Owners of the company Reconcile adopting IFRS 16 "Leases" impact 0 5.68 12.69 2.22 -82.51% CHINA AIRLINES 6#7Composition of Op. Revenue - Cl 2019 Q1-Q3 Passenger Revenue 66% Cargo Revenue Other Op. Revenue 29% 5% 2018 Q1-Q3 Passenger Revenue 64% Cargo Revenue 31% Other Op. Revenue 5% In the first three quarters of 2019, Passenger, Cargo and other operating revenues accounted for 66%, 29% and 5% respectively. CHINA AIRLINES 7#8Composition of Op. Expenses - Cl Others Pax Service 4.4% 4.0% 3.5% Sales & General Adm. 2019 Q1-Q3 Fuel Airport & Ground Handling Personnel 30.7% 13.7% 13.6% Rental & Depreciation 16.6% Maintenance 13.3% Others 3.4% Pax Service Sales & General Adm. 2018 Q1-Q3 Fuel Airport & Ground Handling 32.7% 13.1% Personnel 13.8% Rental & Depreciation 16.8% Maintenance 12.0% 4.0% 4.0% In the first three quarters of 2019, Fuel cost accounted for 30.7% of operating expenses mainly due to the decrease in oil prices. CHINA AIRLINES 8#9Financial Risk Management - Fuel (CI) Fuel Cost 2018 Q1-Q3 2019 Q1-Q3 YoY% Jet Fuel (MOPS) USD/BBL 85.37 77.69 -9.0% Fuel Consumption 10KBBL 1,327.66 1,300.39 -2.05% Fuel Expend TWD/100Million 358.43 334.00 -6.82% Hedging Loss TWD/100Million 0.02 0.09 350% Total Fuel Cost TWD/100Million 358.45 334.09 -6.80% Fuel Hedging Year Hedging% 2019 Q1-Q3 3.3% CHINA AIRLINES 9#10Financial Risk Management - Currency of Revenue and Expenditure 2018 Q1-Q3 2019 Q1-Q3 Rev. Exp. Rev. Exp. 100% 4% 4% 2% 2% 13% 12% 2% 2% 2% 2% 3% 6% 3% 7% 5% 6% 6% 8% 8% 8% 44% 45% 17% 14% 50% 49% 48% 39% 38% 0% TWD USD JPY ■CNY HKD ■ EUR Others CHINA AIRLINES 10#11CHINA AIRLINES Aviation Industry Outlook 11#12World Economic Outlook • • The Chung-Hwa Institution for Economic Research (CIER) forecasts global economic growth of 2.77% in 2019, compared to 3.19% in 2018, marking the second consecutive year of decline. Amid a global slowdown in economic growth, the major economies- America, Eurozone, China and Japan- will experience a deceleration of growth in 2020. Major Economies 2019-2020 Economic Growth Rate Canada 1.41% 1.76% U.S. 2.59% 1.82% 1.69% 1.91% Russia 1.41% 2.05% South Korea Japan 1.08% 0.79% U.K. Eurozone 1.04% 1.03% 6.23% 5.93% China India Taiwan 1.93% 2.00% ASEAN 6.57% 6.76% Indonesia 4.94% 5.02% 0.75% 0.36% CHINA AIRLINES Brazil 0.59% 1.49% Malaysia 4.40% 4.41% Philippine 5.98% 6.03% Thailand 3.38% 3.29% Singapore 1.38% 1.88% Brunei 4.30% 4.20% South Africa 0.68% 1.59% Australia 2.08% 2.53% Laos Cambodia 6.90% 6.62% 6.50% 6.50% Myanmar Vietnam 6.70%-6.90% 6.57% 6.45% Source: CIER 12#13Passenger Traffic Continues to Grow . • According to IATA mid-year report, the growth rate of global and Asia-Pacific RPK is estimated to be 5% and 6.3% respectively at the end of 2019. RPK growth is expected to slow down worldwide in 2019 while the growth rate of Asia-Pacific remains strong. (Billion) RPK 10,000 Global -Asia Pacific 8,760 8,343 3,500 7,772 8,000 7,193 6,693 6,253 5,882 6,000 5,561 5,252 4,940 3,057 2,876 2,500 2,631 2,375 4,000 2,138 1,951 1,811 1,500 1,676 1,562 2,000 1,465 0 500 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CHINA AIRLINES Source: IATA Statistics Fact Sheet 13#14Air Cargo Growth Slows Down • IATA suggests global freight volume will stay flat in 2019 and Asia Pacific FRTK volumes contracted due to the mounting trade tensions in the region and a economic slowdown in Mainland China. (Billion) FRTK 300 Global -Asia Pacific 100 263 263 95 253 250 231 90 222 217 203 203 205 201 85 200 83 81 80 150 75 74 73 72 71 100 68 67 77 75 70 65 60 50 55 0 50 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 CHINA AIRLINES Source: IATA WATS 14#15CHINA AIRLINES Passenger Performance and Strategies 15#16Passenger Performance Revenue TWD 72.88 Billion TWD 71.1 Billion 2018 Q1-Q3 ▲ 2.5% 2019 Q1-Q3 Composition by Region Southeast Asia 18% Australia/ Trans Pacific Ocean 15% New Zealand Hong Kong 7% 6% Europe 10% Northeast Mainland China Asia 29% 15% Passenger revenue increased by 2.5%, reaching TWD 72.88 billion in the first three quarters of 2019. Northeast Asia accounted for the largest share (29%) of revenue, followed by Southeast Asia with revenue share of 18%. CHINA AIRLINES 16#17Passenger Operation Index ASK (MN) Load Factor Yield (TWD) 39,314 39,255 80.7% 79.6% 2.27 2.30 ▼0.2% ▲ 1.1ppt ▲ 1.3% 2018 Q1-Q3 2019 Q1-Q3 2018 Q1-Q3 2019 Q1-Q3 2018 Q1-Q3 2019 Q1-Q3 ASK decreased by 0.2% while the load factor and yield increased by 1.1ppt and 1.3% respectively in the first three quarters of 2019. CHINA AIRLINES 17#18Political & Economic Outlook Breixt According to NATS research, the willingness of travel is not impacted among most people in the UK. • ⚫ TW's investment amount in the UK takes the 1st place among EU, achieves 42.3%. The unstable GBP currency and social issues will be impact for TW investment. Influence to TW market alert moderate mild Japan-South Korea trade dispute • The dispute is not ending temporarily. It impacts global supply chain, especially high-tech industry. • TIER indicates the limited gain from relocations. • According to Korean media JTBC, air ticket sales dropped 38% in JP market and rose 38% in TW market. % in TW 2020 Tokyo Olympics •The Olympics triggers prosperous tourism market. US-China trade war Air freight goes weak due to long-term effect of trade war ⚫ IHS Markit indicates TW GDP would decrease 0.03- 0.04% if US & China GDP declined 0.1% respectively. •TW exports to PRC will reduce 1.78% & to US will rise 2.16% if US imposes 10-25% tariff to PRC & PRC imposes 5-25% tariff to US. TW preside election • Entry Permit of PRC may open issuing after 520. • Market demand rises due to CNY & election. Geopolitics ⚫ Political issues in EU, Middle East, HK and terrorisms, racial conflicts etc. often directly affect aviation industry. CHINA AIRLINES Source: MOEA IATA TIER CIER TTB 18#19Flight Network Europe ASK ▲ 3.7% * Demand steadily grows in Taiwan outbound direct flight service. market with 32 flights per week with 5 destinations Trans Pacific Ocean ASK ▼4.1% Ontario/Los Angeles 17 flights/week offer better service and gain more market share. 37 flights per week with 6 destinations Mainland China ASK V1.8% Mainland China market experiences the negative growth due to the latest Restricted Policy. 124 flights per week with 28 destinations Southeast Asia ASK ▲ 1.5% Inbound visitors from Southeast Asia increase substantially resulting from the implementation of New Southbound Policy. 167 flights per week with 15 destinations * 2019 Q-Q3 ASK YOY % CHINA AIRLINES Northeast Asia ASK▲ 4.2% The extra or charter flights to Northeast Asia will be arranged to generate more revenue. 232 flights per week with 17 destinations Hong Kong ASK ▼4.8% While local unrest due to anti-extradition to China remains, duly adjust capacity supply. 128 flights per week with 1 destinations Australia & New Zealand ASK V5.5% Increase frequency to maintain competitive edge. 22 flights per week with 4destinations 19#20Newly Increased Flights Description February March Increased services from Taipei to Palau from 2 times weekly to 3 times weekly, and advanced to 4 times weekly from June Increased services from Taipei to Nagoya from 12 times weekly to 2 daily HOLLYWOOD April October October Increased services from Taipei to Phnom Penh from 5 times weekly to daily Increased services from Taipei to Los Angeles from daily to 10 times weekly, and mounted to 17 times weekly services into Greater Los Angeles Area Increased services from Taipei to Melbourne from 3 times weekly to 4 times weekly CHINA AIRLINES 20#21Secure Taiwan Market by Multiple Brands Capacity Development Fleet Size Steady Growth IPO Sustainable Business 6 10 11 11 11 2014 2015 2016 2017 2018 2019 140 8-3000 aiwan Theeran Revenue Profit/(Loss) before Tax Operating Performance TWD 100 Million tigerair x bursa MY TRAVEL MY WAY 120 100 80 87.75 68 60 43.36 40 19.67 20 9.95 5.64 0 (20) -5.73 2015 -7.83 2016 2017 2018 Forecast 2019 Budget 2020 tigerair | Memes CHINA AIRLINES Creating multiple financing opportunities • Establishing firm value. • Increasing public awareness Strengthening corporate governance bility Sustainabili We IPO 冰續華航 Care 21#22Cooperation with Other Airlines • China Airlines cooperates with more than 20 interline partners. In 2019, the new added interline routes are mainly in Northeast Asia, Southeast Asia and Mainland China. WESTJET ▲ DELTA CSA CZECH KLM AIRLINES 上海航空公司 SHANGHAI AIRLINES AIRFRANCE æ Air Europa Alitalia KOREAN AIR CHINA EASTERN JAPAN AIRLINES XIAMENAIR HAWAIIAN CHINA SOUTHERN AIRLINES AIRLINES. Vietnam Airlines Bangkok Airways Philippine Airlines CHINA AIRLINES malaysia airlines ROYAL BRUNEI Garuda Indonesia AIRLINES QANTAS 22 22#23Technology along The Journey Cl has been developing a comprehensive e-commerce channel. The online trading volume has increased by 30%, in which mobile trading accounted for 21%. Passenger Technology Adoption in 2018 Passenger Demand For Mobile Service 100% 85% Alerts on Flights and Gates 74% 22% 80% 70% 65% 60% Bag Collection Notification 63% 32% 54.5% 48% 4496 40% Report Mishandled Bags 2696 23% 20.5% 20% 0% Route to Check-in, Gates, Lounge 59% 65% 29% 35% Track Bags on Apps 64% 29% Booking Check-in Bag Tag Self-bag Passport Drop CI Mobile APP 3.0 Itinerary Management Dwell Time Boarding On Bag Board Collection ID Identification 59% 33% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Winter vacation a far not before 6:00 TPE FUK 11:02 11 10 E-Bulletin Board Exil 行李出 Facebook Customer Service 台灣益家航空公司 正式啟用書寫報 Self Check-in Baggage Counter CHINA AIRLINES CHINA AIRLINES Baggage Tracking System Source: SITA 23#24CHINA AIRLINES Cargo Performance and Strategies 24#25Cargo Performance Revenue TWD 34.72 Billion Composition by Region Europe 12% Australia/ New Zealand 2% 2018 Q1-Q3 ▼9.3% TWD 31.50 Billion 2019 Q1-Q3 Northeast Asia 7% Trans Pacific Mainland China 7% Ocean 54% Southeast Asia 16% Hong Kong 2% Cargo revenue totaled TWD 31.50 billion, a 9.3% decrease, in the first three quarters of 2019. Trans Pacific Ocean accounted for the largest share (54%) of revenue, followed by Southeast Asia and Europe with revenue share of 16% and 12% respectively. CHINA AIRLINES 25#26Cargo Performance Index 6,058 Load Factor FATK (MN) ▼3.3% 5,860 Yield (TWD) 71.4% 66.3% 8.03 8.11 75.1ppt ▲ 1.0% 2018Q1-Q3 2019Q1-Q3 2018 Q1-Q3 2019 Q1-Q3 2018 Q1-Q3 2019 Q1-Q3 FATK decreased by 3.3% and the load factor dropped 5.1 ppt while yield grew by 1.0% in the first three quarters of 2019. CHINA AIRLINES 26#27Flight Network *** CHINA AIRLINES CARGO 阿姆斯特丹法蘭克福 廣州 廈門 深圳 忘台北 盧森堡 布拉格、 (名古屋) 大阪 東京 香港 河內 德里 杜拜 曼谷 馬尼拉 孟買 胡志明市 檳城 吉隆坡 6 flights per week, 新加坡 雅加達 Europe FATK 9.2% * 2019 Q-Q3 FATK YoY % CHINA AIRLINES <安克拉治 西雅圖 芝加哥 舊金山 ◇哥倫 紐約 ·洛杉磯 「達拉斯· 亞特蘭大 休士頓 邁阿密 eses54 flights per week Regional FATK 1.8% 36 flights per week Trans Pacific Ocean FATK ▼6.4% 27 27#28Newly Increased Flights Description March Launched a new 2 times weekly freighter service to Nagoya with the additional stopover of flight returning to Taipei from Los Angeles and San Francisco. CHA AIRLINES A September CHINA AIRLINES October November Launched a new one time weekly freighter service to Zhengzhou Increased freighter services to Chongqing to 2 times weekly Launched a new 2 times weekly freighter service to Mumbai with the stopover shift of flight between Taipei and Amsterdam. 28#29Special Cargo China Airlines Cargo has become the first carrier in Taiwan to be certified by the IATA Center of Excellence for Independent Validators in Pharmaceutical Logistics (CEIV Pharma). From semi-conductors to all-terrain vehicles and aerospace parts, Cl assist with outsize cargo shipment worldwide by nose-loading 744F. Pharmaceutical logistics is a longstanding business that began growing in 2016 at a rate of 30% per year. astrium astrium 超長貨• PGX 40028 PC ASML CUS 半導體精密儀器 CHINA AIRLINES 衛星 RAPSOC Envirotines e2 Envirotave 蔡送哪一樣 「都為你完美控温 RON 00630 PK Safe Ballach S 中華航空 榮獲製藥等級冷鏈認證 CEN CARGO 29 29#30Interline Cooperation Express Operators ups FedEx. SP EXPRESS Express Other Airlines Cooperate with other airlines to develop Mid-Asia and Latin American markets. Short Term CI can arrange part-charters, backloads and other commercially innovative solutions for ad-hoc, peak season and project cargo. Long Term Cl has secured contracts for the following routes with express operators. Shanghai-New York, Osaka-Chicago, Tokyo- Honolulu, Taipei-Frankfurt, and Taipei- Los Angeles CHINA AIRLINES CARGO SOUTH AFRICAN AIRWAYS Aerolíneas Argentinas Vietnam Airlines CENTURION CARGO AEROFLOT Russian Airlines CHINA CARGO AEROMEXICO. cargo CHINA SOUTHERN Cargo AIRFRANCE/KLM Alitalia LATAM CARGO CARGO CARGO Emirates CSACZECH AIRUNES CARGO ADELTA CARGO KSREAN AIR CARGO CHINA AIRLINES 30#31CHINA AIRLINES Operating Fleet 31#32Operating Fleet as of September 2019 As of September 2019, Cl operates 88 aircraft, including 70 passenger aircraft and 18 freighters, and 48 of which are self-owned and 40 are operating leased. Aircraft Type 777-300ER Owned Leased CHINA AIRLINES 10 747-400 4 A350-900 14 A330-300 8 15 737-800 4 15 747-400F (Freighter) Number of aircraft in fleet 18 48 40 32#33Fleet Planning To maximize fuel efficiency, Cl is expected to receive the first of 6 777F in 2020 and the first of 25 A321neo in 2021. CHINA AIRLINES Passenger By replacing 737-800 with A321neo in regional markets to establish operational excellence CHINA AIRLINES 8 T. Freighter By replacing 744F with 777F to achieve cost efficiency and increase payload capacity CHINA CARGO AIRLINES 33#34Thank you 2019.11 China Airlines | No.1, Hangzhan S. Rd., Dayuan Dist., Taoyuan City, Taiwan TEL | 03.399.8888 EAM CHINA AIRLINES dp