The Group is one of the three largest air carriers in China based on 1997 tonne-kilometers and number of passengers carried, and is the primary air carrier serving Shanghai, China's eastern gateway. At the end of 1997, the Group, which provides passenger and cargo airline services, operated almost 1,336 flights per week from 70 airports within China and abroad. These flights covered 140 routes, 113 of which were domestic routes. At the end of 1997, the Group's domestic routes accounted for approximately 41.5% of its total passenger revenues. At the end of 1997, the Group also operated 190 flights per week on 12 routes originating from Shanghai and eleven other major cities in eastern China to and from Hong Kong. The Group's Hong Kong routes and five Japan routes have been the Group's highest yielding routes, accounting for approximately 24.6% and 15.8%, respectively, of traffic revenues for 1997. At the end of 1997 the Group also operated approximately 116 international flights per week, serving 15 cities in nine countries, primarily linking Shanghai to major cities in east and southeast Asian countries (Japan, Korea, Singapore and Thailand) and certain strategic locations in Europe and the United States. In addition to its core Shanghai-based operations, the Group has four provincial hubs in eastern China, each of which predominately serves, and is located in a principal commercial center of one of the provinces of Anhui, Jiangsu, Jianxi and Shandong.
In 1997, the Group's operations experienced steady growth. Traffic volume in 1997 increased by 18.34% over that of 1996, reaching 1.29Bn tonne-kms; total revenue increased by RMB 1.29Bn or 17.68% from 1996, to RMB 8.57Bn; and average aircraft utilization increased by 0.5 hours to 7.2 hours.
Overall, the Group's passenger revenue increased by 16.92% over that of 1996, rising to RMB 6.89Bn in 1997, accounting for 80.38% of the Group's total revenue; passenger traffic increased by 16.75% over that of last year, reaching 10.05Bn passenger-kilometers during the year. The Group's domestic passenger traffic increased by 9.12% over that of 1996, reaching 4.10Bn passenger-kilometers. During the same period, domestic passenger revenue increased by 12.79% over that of last year, reaching RMB 2.86Bn, which represented 41.47% of total passenger revenue. The increases in domestic passenger traffic and revenue were driven by higher capacity and yield. In 1997, the Group's domestic passenger capacity increased by 16.55% over last year, the Group's domestic passenger load factor has declined in 1997, mainly due to the fact that increase in the overall domestic passenger capacity has surpassed the rate of increase in overall passenger demands, reflecting the intense competition in the aviation market. However, increase in domestic air fares effective in the second half of 1996, the Company's active effort in market development and exploration in new passenger sources had helped with the domestic passenger yield this year, increasing it by 4.5% over last year. Consequently, the growth in revenue in 1997 surpassed the rate of growth in passenger traffic. The Group has further adjusted the structure of its domestic routes and added a number of middle and short distance aircraft suitable for domestic operations to help develop its domestic routes.
The Group's Hong Kong passenger traffic increased by 8.22% over that of 1996, reaching 1.52Bn passenger-kilometers in 1997. During the same period, the Hong Kong passenger revenue was RMB 1.86Bn, representing a 12.12% increase over that of last year, and accounted for 26.98% of total passenger revenue. The increases in Hong Kong passenger traffic and revenues were due to higher passenger capacity, passenger load factor, and yield. The Group's Hong Kong passenger capacity increased by 6.08% over that of last year, but the increase in passenger demand was even greater and passenger load factor increased by 1.3 percentage point over that of 1996. At the same time, higher Hong Kong air fares effective during the second half of 1996 combined with a lower discount rate also helped to produce a higher Hong Kong passenger yield. As a result, the revenue increased by a greater rate compared to the passenger traffic increase.
The Group's international passenger traffic increased from 3.44 Bn passenger-kilometers in 1996 to 4.42 Bn passenger-kilometers in 1997, representing a 28.56% increase. During the same period the international passenger revenue increased from RMB 1.70Bn of 1996 to RMB 2.17Bn this year, representing a 27.33% increase, and accounted for 31.55% of the total passenger revenues. The increase in international passenger traffic and revenue were attributable to higher passenger capacity. The Group's passenger capacity was 26.84% higher compared with that of 1996, due to the addition of two A340 aircraft, which were primarily used in the Group's international and Hong Kong routes. The Group's international passenger traffic increased, thereby increasing the international passenger load factor by 0.9 percentage point.
The Group's revenues from cargo and mail operations increased from RMB 1.11Bn in 1996 to RMB 1.33Bn in 1997, representing an increase of 20.08%, accounting for 15.54% of the Group's total revenue. Traffic in 1997 reached 401.9M tonne-kilometers, increased by 22.31% over that of 1996. The increases in cargo traffic and revenue were primarily the result of the Group's larger cargo transportation capacity, which was expanded by 23.87% over that of last year. The cargo traffic increase was less than the capacity increase, causing the cargo load factor to decrease in 1997.
Total operating expenses in 1997 was RMB 7.13Bn, 21.95% up from that of 1996, mainly due to the higher depreciation and major overhaul costs recorded being caused by the increase in capacity (additions of three A340 aircraft in May and July last year and further additions of two A340 and three Boeing MD-90 aircraft this year) and the asset appraisal dated June 30, 1996. The domestic oil price was adjusted on March 1, 1997, causing higher fuel cost. Cost was also increased due to the provision for post-retirement benefits.
The Group's foreign exchange gain for 1997 was RMB168M.
The Group's net profit was RMB 635M for the year ended 31 December, 1997, representing an increase of 7.53% from that of 1996.
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