China Southern posts interim loss

China Southern Airlines has posted half year results and a loss attributable to shareholders amounting to approximately RMB825
million compared to RMB907 million in the corresponding period of 2005.The Group’s total operating revenue amounted to
approximately RMB20,604 million (Corresponding period in 2005: RMB17,844 million) with a basic loss per share of
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

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.

China Southern Airlines has also been nominated this year for a


World Travel Award as Asia’s Leading Airline.