2019 Operational Highlights and 2020 Outlook

Pursuit of Excellence and Sustainable Profits


China Airlines’ sustainable development is built on the idea of safety as the highest commitment to our passengers and shareholders. In the pursuit of opportunity and excellence, we create advantages by expanding our presence around the globe. To optimize and concentrate our aviation network we expand alliance cooperation and raise capacity. These measures aim to bring China Airlines to new heights.

 

Establishing a Leading Presence to Open New Opportunities

Politics, the economy, society, technology, and the environment all impact the civil aviation transport industry. Looking ahead, the International Air Transport Association (IATA) predicts a stronger global economy in 2020, with annual growth of 3.4% compared to 2019. Taiwan faces a small impact from slower growth, however, in regions and countries it has especially high contact with, such as China, the United States, and Japan. In the Asia-Pacific region, warming trade relations are expected to boost income. There are a number of potential drags on growth, however. A rapid increase in tension between the United States and some Middle Eastern nations has caused short-term fluctuations in global oil prices. Relations across the Taiwan Strait and between Mainland China and Hong Kong remain unresolved. The trade war between China and the United States continues. The arrival of new airlines and rapid expansion among budget operators is leading to fiercer market competition, further eroding profits. Each of these factors poses a challenge to airline operators.

China Airlines’ NexGen long-range aircraft is fully equipped to serve medium- and long-range routes in Europe, North America, and Oceania with a new generation of passenger aircraft. These high-efficiency, high-quality aircraft improve quality and comfort for passengers. Based on seasonal demand, we adjust aircraft type deployment. Higher numbers of flights make bidirectional transfers more convenient and strengthen our aviation network competitiveness, which will lead to increased revenues. For regional routes, we continue to strengthen our network of alliances. As the overall environment in Asia changes, this strategy creates greater flexibility to develop destinations with high income potential, which will increase both our passenger and cargo operations earnings.

We also continue to replace ageing aircraft. Deliveries of the Boeing 777F cargo aircraft will begin in 2020 and be followed in 2021 by deliveries of the Airbus A321neo new generation of narrow-body aircraft. To improve in-flight service and provide a uniform experience for passengers, we will add portable wireless streaming devices to the fleet’s Boeing 737-800s, renovate the cabins of the Airbus A330-300s, and standardize the premium economy class services on the Boeing 777-300ERs and Airbus A350-900s. In-flight network signal receivers are being upgraded across the fleet. The Airbus A321neo new generation of narrow-body aircraft will contain the latest passenger cabin equipment, including all-new, automatic full flat seats in the business passenger section. The economy section’s streamlined design will include ergonomic seats, each equipped with individual multimedia entertainment systems featuring 4K high-definition screens. The fastest wireless internet service in the industry will provide an even more brilliant, comfortable experience for passengers.

Across the globe, airline cargo supply has exceeded demand for many years. A number of political and economic factors are widening the imbalance, including geopolitical conflict, trade wars, and Brexit. China Airlines pragmatically handles these issues by using our cargo aircraft advantages to optimize our aviation network and maintain capacity flexibility. In 2020, we will seek to increase unit benefits and loading rates. Belly freight capacity on the Boeing 777-300ER and the Airbus A350-900 combined with our regular cargo fleet capacity optimize close transport connections between Asia, Europe, and North America. Stronger cooperation with our alliances and major international cargo agents enables us to further improve our air cargo operations.

Besides the core air transport business, we are expanding other sources of income. We continue to seek greater market share in the Asian flight maintenance industry. To support sustainable operations for our subsidiary Tigerair Taiwan, we are planning a separate public listing of the unit by as early as 2020. The diverse group of brands within the China Airlines organization supports our multifaceted operational improvements strategy and is expected to generate all-new profit opportunities.

Replacing Ageing Aircraft to Create New Advantages

In response to stable demand growth and aviation network development strategies, China Airlines continues improving overall operations by acquiring new aircraft to replace ageing fleet members. At the end of 2019, we had 88 aircraft, consisting of 70 passenger aircraft and 18 cargo aircraft. Their average age was 9.6 years. Besides replacing ageing cargo and short-haul aircraft, we take additional steps to raise overall operational efficiency and market competitiveness.

Type 777-300ER
Passenger Aircraft
747-400
Passenger Aircraft
A350-900
Passenger Aircraft
A330-300
Passenger Aircraft
737-800
Passenger Aircraft
747-400
747-400 Cargo Aircraft
Quantity 10 4 14 23 19 18
Total 88

Optimizing Our Aviation Network to Achieve Market Consolidation

Capacity planning is based on the 2020 passenger market outlook. On long-haul lines, aircraft type and flight frequency adjustments accommodate seasonal demand variations. We also continue to utilize our sixth freedom of the air bidirectional transfers. On regional lines, we deepen alliances. As overall conditions in Asia change, we adjust capacity and develop destinations that show good potential.

In recent years, in order to optimize global aviation network capacity, China Airlines added new generation long-haul passenger aircraft. Besides increasing the number of flights and moving to an all-direct flight model for our European routes, we expanded service to North America and Oceania. At the end of October 2019, we increased flights to Los Angeles and adjusted aircraft type flying to Ontario International Airport. The purpose was to solidify our position in the Greater Los Angeles area, strengthen our alliances with partners in the United States and Canada, and make it more convenient for our customers to travel to and from major cities in the North American interior. For New Zealand and Australia, we increased the number of flights to Melbourne to four weekly. Passengers from these countries can pass through Taiwan to travel to and from Europe, the United States, and Asia, showing the value of Taoyuan International Airport as a major hub for the Asia-Pacific region. The additional flights further solidified our position as the leading carrier for travel between Taiwan and Europe or the Australia-New Zealand region. After the start of the government’s New Southbound Policy, China Airlines increased the southbound aviation network density to accommodate passengers from Europe, North America, New Zealand, and Australia who transfer in Taiwan. On October 1, 2020, we will open a new flight route between Taipei (Taoyuan) and Cebu that has six flights per week. On October 2, 2020, we will resume the route between Taipei (Taoyuan) and Chiang Mai, offering four flights per week. We also continue to expand the breadth and concentration of our network in Northeast Asia. For example, we optimize existing routes and add chartered flights during peak seasons as strategies for developing new destinations and gaining market share. Looking ahead to 2020, we will solidify primary markets. Besides strengthening our existing aviation network, we will open up new destinations that show good potential. Our purpose is to provide passengers with a dense aviation network that offers convenient flight options.

Building a Denser Aviation Network to Solidify Our Market Leading Position

According to data from the CAA, the China Airlines Group (CI/AE/IT) performed excellently in terms of the market for inbound and outbound passengers to and from Taiwan in 2019. Total passengers were 17.98 million. The total number of seats available and number of passengers carried both amounted to a market share of approximately 30%, which led the industry.

Company Seat Volume C/S Passenger Volume M/S
China Airlines 17,208,085 23% 13,900,100 23%
Mandarin Airlines 1,592,273 2% 1,288,478 2%
Tigerair Taiwan 3,302,616 5% 2,783,726 5%
EVA Air 15,446,447 21% 12,861,068 22%
UNI Air 1,019,083 1% 848,003 1%
Cathay Pacific 4,571,131 6% 2,578,433 6%
Cathay Dragon 1,705,114 2% 1,306,078 2%
OTHS 28,424,022 39% 22,711,7676 38%
Total 73,278,771 100% 59,277,753 100%

Source: Terminals under CAA management and the Taoyuan International Airport Corp.
Note: Inbound and outbound passengers are those who cross Taiwan’s border. A Taiwan airport must be the first or last leg of the trip.
https://www.caa.gov.tw/StatisticsYearMonthFile.aspx?a=1091&lang=1

In line with the government’s New Southbound Policy, in the summer of 2019 we increased flights on our Phnom Pen – Taipei route from five weekly to one daily. From October 28, 2019, we added three CI006/CI005 flights to our Taipei – Los Angeles route, increasing the number of weekly flights to 17 and further expanding the aviation network between North America and Southeast Asia. In places where we have a regional advantage, such as Northeast Asia, New Zealand and Australia, we continue to increase capacity and code-sharing cooperation with partner airlines to expand both the breadth and density of our aviation network and consolidate our market share.

Looking ahead to 2020, the China Airlines Group will continue to cultivate primary markets. We will take advantage of opportunities that come from optimizing our aviation network and provide customers with flight services that are better planned and more convenient.

Excellent Performance Raises Our Global Cargo Operations Ranking

China Airlines has 20 Boeing B747–400F aircraft, 18 of which were in service in 2019, representing the largest operational fleet of this type of aircraft in the world. We flew 90 regular cargo flights per week, comprising 33 long-haul flights, six European route flights, and 51 Asian route flights. According to IATA, we transported 1.512 million tons of goods by air in 2018, ranking sixth in the world and a 3.4% increase compared to the 1.462 million tons of goods transported in 2017. In 2018, our total freight tonne kilometers (FRTK) were 5,804 million tkm, which ranked 12th in the world. In 2019, our freight available tonne kilometers (FATK) and capacity (FRTK) decreased 7.95% and 12.70%, respectively, compared to 2018.

Decisive Action to Develop New Destinations

In 2019, China Airlines continued making inroads into Indo-Pacific cargo markets. At the end of March we began serving Nagoya, Japan, as part of a multi-leg flight between Taiwan and the US west coast. Two flights operated weekly to connect the import and export demand of local manufacturers between Nagoya and Chubu region. The flights reduced the time and cost previously associated with land transit in Japan’s interior by providing customers with more direct service. To take advantage of business in the fast-growing emerging market in India, after opening a Delhi – Luxembourg route, in November we started two weekly flights on a Mumbai – Amsterdam route to take advantage of marine-terrestrial joint distribution centers located near Mumbai. Excellent financial results encouraged us to continue opening new cargo destinations to maintain competitiveness.

At the same time, we had success gaining rights to more cargo routes across the Taiwan Strait. At the end of October we received permission to fly a second weekly cargo flight to Chongqing to support delivery timetables of some of our primary customers. Loading performance was strong. To meet the needs of postal delivery customers, in the fourth quarter we planned a customized charter flight serving Zhengzhou that flew a total of 15 times. Additional regular charter flights served Taipei – Columbus (US), Hong Kong – Chicago, and other destinations connecting Asian airports to major cities in the United States. To respond to changing regional industrial trends, we continues to modify our Southeast Asian network. By changing multi-leg flights, adjusting cargo distribution between legs of long-haul journeys, and other measures, we stabilize our loading and achieve good operational results.

Alliances Lead to Win-Win Situations

China Airlines continues to cooperate with UPS, DHL, FedEx, SF Express, and other delivery services. After opening a cargo route between Taipei and Shenzhen in 2015, UPS began ordering shipping space on flights to many of our destinations, and we offered charter flights to the United States. We also strengthened partnerships with Asian regional airlines, including Nippon Cargo Airlines and All Nippon Airways, to provide a wider range of products for customers while achieving win-win situations.

Certified Cold Chain Services

In recent years, there has been a marked rise in demand for transport of special products, such as pharmaceutical goods, vaccines, and high-grade chemicals. Strict temperature controls during transport are often part of protocol. To provide better, more stable conditions, China Airlines applied for CEIV Pharma certification from IATA. Our Taipei Station passed inspection in April 2019 and was officially certified, making us the first airline in Taiwan to achieve this recognition and one of just 17 members in the world. The certification process significantly improved our cold chain transport capabilities. Promoting the delivery of temperature-controlled containers, developing full course active and passive temperature control cargo delivery SOPs, and upgrading our full range of cooling and freezing equipment has also enabled us to provide customers with even better cold chain transport services.

Professional Service Makes Us the First Choice for Challenging Cases

As a leading air cargo brand recognized for excellent planning and execution capabilities, customers make us their first choice for transporting special goods, such as precision instruments, valuable documents, machinery & equipment, and live animals. On numerous occasions, customers have chartered our flights to ship semiconductor machinery. We have abundant experience shipping expensive precision tools, aircraft engines, and related items, and received the honor of being chosen for a fifth time to transport a government satellite, the FORMOSAT-7, which we sent to the United States for launch. Using the highest handling standards, we again demonstrated to our customers the value of China Airlines’ professional cargo operations.