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News Release - China Southern Airlines Announces 2006 Interim Results

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China Southern Airlines
Press Release

Note:  A copy of China Southern Airlines’ Unaudited Consolidated Income Statement is available by contacting Ruffolopr@hotmail.com.

China Southern Airlines Announces 2006 Interim Results

HONG KONG, August 17, 2006 - China Southern Airlines Company Limited (“China Southern Airlines” or the “Company”) today announced the unaudited consolidated results of the Company and its subsidiaries (the “Group”) for the six months ended 30 June 2006 (the “Period”), prepared in accordance with International Financial Reporting Standards (“IFRS”). The Group’s total operating revenue amounted to approximately RMB20,604 million (Corresponding period in 2005: RMB17,844 million); loss attributable to shareholders of the Company amounted to approximately RMB825 million (Corresponding period in 2005: RMB907 million). Basic loss per share was RMB0.19 (Corresponding period in 2005: RMB0.21).

The Board of Directors of the Company did not recommend any interim dividend for the first half of 2006. The Company said, “Taking advantage of the continuing favorable macro-economic environment in the PRC, the Group has managed to raise its passenger load factor by increasing its carrying capacity, optimizing its route networks, raising its aircraft utilization rate, improving its service quality, and optimizing its revenue management. This has led to increases in the Group’s passenger and cargo traffic volume, passenger load factor and income level to various extents, resulting in a corresponding increase in the overall operating income of the Group. However, as jet fuel prices kept rising and the interest rates of US dollar denominated loans climbed up during the Period, the cost pressure that the Group faced in its business operations did not ease, resulting a net loss for the Company during the Period.”

During the Period, the Group achieved a total traffic turnover of 3,708 million tonne kilometers, representing a year-on-year increase of 10.9%; a passenger traffic volume of 22,686,000 passengers carried, representing a year-on-year increase of 12.0%; a cargo and mail traffic volume of 376,000 tonnes, representing a year-on-year increase of 8.0%; and a passenger load factor of 70.7%, representing a year-on-year increase of 3.6%. Passenger revenue increased by 16.7% to RMB18,627 million while revenue from cargo and mail increased by 8.1% to RMB1,596 million.

With a view to alleviating the burden imposed on the aviation industry by the ever-rising jet fuel prices, on 16 February 2006, the National Development and Reform Commission (“NDRC”) and the Civil Aviation Administration of China (“CAAC”) issued a notice that imposed fuel surcharges on domestic flights, expressly providing that the period for imposing fuel surcharges on domestic flights would be extended as long as jet fuel prices continued to rise. On 28 March 2006, the NDRC and the CAAC issued a further notice on the imposition of fuel surcharges on domestic flights, which increased the rate of fuel surcharges from RMB20 to RMB30 per passenger for a route of less than 800 kilometers and from RMB40 to RMB60 per passenger for a route of more than 800 kilometers, with the period tentatively set for the imposition of such surcharges from 10 April 2006 until 10 October 2006. The imposition of fuel surcharges and the extension of the period for such imposition will help to ease the fuel cost burden on the Group.

In view of the globalization of the aviation industry, the Group has dedicated to increasing its competitiveness and improving its market development capability. With this end in mind, China Southern Airlines and SkyTeam Alliance, one of the three largest airline alliances in the world, held a signing ceremony in Guangzhou on 28 June 2006, at which the parties executed the GAAAA (Global Airline Alliance Adherence Agreement) under which China Southern Airlines undertakes to improve and optimize relevant products, service facilities and processes according to the operating standards and processes set by the Alliance. 

In regard to the Company’s accession to the SkyTeam Alliance, China Southern Airlines said, “The Company believes that its accession to SkyTeam Alliance will help to make up for the inadequacies of China Southern Airlines’ international route networks and that it will be able to extend the Group’s flights to all parts of the world by using the international route networks of SkyTeam Alliance, thereby promoting the penetration of the Group into the global market and increasing its profitability.”

Looking ahead, the Company said, “The Group is currently experiencing tough challenges in its business operations. However, the Group believes that the most difficult time of an enterprise is also a special time of which it can take advantage for reorganizing and strengthening itself. The Group will continue to take a series of measures, including: to make adjustments in the setup of its route networks so as to achieve a strategic shift from a ‘point-to-point’ linear operational model to a “hub-network’ operational model; to launch service brands such as ‘Online Check-in’ and ‘Free & Easy – Passion in China’ by making new innovations, and to keep improving its services to attract passengers; to actively explore ways to alleviate its cost pressure by taking advantage of financial derivative products such as jet fuel futures hedging and interest rate transactions; and to continue, as always, to maintain a strict control on its costs so as to improve its overall efficiency.”

The Group is one of the largest airlines in the PRC in terms of volume of passenger traffic, number of scheduled flights per week, number of hours flown, number of routes and size of aircraft fleet.  The Group operates the most extensive route network among all PRC airlines. At 30 June 2006, the Group operated a total of 527 routes, of which 426 were domestic, 75 were international and 26 were Hong Kong and Macau. At 30 June 2006, the Group operated a fleet of 264 aircraft and the average age of the Group’s fleet was 6.78 years.

Unaudited Consolidated Income Statement (Prepared in accordance with International Financial Reporting Standards) Unaudited Consolidated Income Statement (Prepared in accordance with PRC Accounting Rules and Regulations)

For enquiries, please contact:

China Southern Airlines Company 
Mr. Su Liang 
Tel: (8620) 8612 4738 
Fax:(8620) 8665 9040 
E-mail：webmaster@cs-air.com


Mr. Jeff Ruffolo
Senior Advisor
International Public Relations
Office 1-714-532-2054
E-Mail:Ruffolopr@hotmail.com



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