Snapshot: China Southern Airline (NYSE:ZNH)

Overview

· ZNH joined Skyteam in 2007. (Skyteam is the second largest international airline alliance behind Star Alliance. Skyteam has carriers from over four continents)

· ZNH is China’s largest airline with 54 international offices, 13 branches, 18 domestic ticket and sales offices in China, 5 holding subsidiaries and 2 bases

· ZNH is China’s largest domestic airline with 160 domestic routes

· ZNH flies in 171 cities in 27 countries, however it flies mostly on domestic routes

· 16 July 2008 – achieved a Five-Star Flight Safety Award rating from the General Administration of Civil Aviation (CAAC) – ZNH is the leader in flight safety and international leadership amongst Chinese aviation carriers

· Beijing and Guangzhou are ZNH’s hubs to extend across Asia

· ZNH operates 300 aircraft – aircraft models Boeing 777, 747, 757, 737 and Airbus A330, 321, 320, 319, 300

Sources:

http://www.skyteam.com/about/carriers/index.html

http://www.csair.com/en/shqybg/index.asp

Revenue/Earnings Growth Outlook

· ZNH recently posted a third quarter profit of $284M RMB, compared to a $830M RMB loss one year earlier

· In the first nine months (three quarters) of 2009, Chinese domestic travelers rose 20% due to government stimulus

· ZNH earned Net Profit of $322M RMB in the first three quarters of 2009, compared to a loss of $21M RMB year-on-year.

· According to ZNH sources, the large increase in profits is due to a reduction in operating costs and financial aid from the Chinese government

· ZNH received $1.566B RMB subsidy payments from the Chinese government. This boosts one-off gains by $1.303B RMB

· Chairman Si Xianmin says that China Southern Airline is set to expand in overseas markets, because of intense competition in domestic travel – air and rail

· Currently, ZNH’s international portfolio is 17% of its total travel. In the next 3-5 years, it will rise to over 20%.

· Sales rose 9.5% to $15.95B RMB due to overall expansion in the third quarter. Overall, Chines GDP rose 8.9%, causing a rise in domestic travel

ZNH_SL_09Q21

Sources:

http://www.bloomberg.com/apps/news?pid=20601080&sid=aguPDwJpTW5A

http://www.tradingmarkets.com/.site/news/Stock%20News/2612910/

http://www.tradingmarkets.com/.site/news/Stock%20News/2606486/

http://www.csair.com/en/investor/index.asp

Cash Flow / Financial information

· The earnings-per-share and net profit figure does not appear as rosy as the chart depicts.

· Financial aid from the Chinese government has propped up overall net profit for Jun 2009, totaling $1.5B RMB for China Southern Airline

ZNH_SL_09Q23

Competition / industry

· The competition in the Domestic travel industry is increasingly fierce, Southern China Airline plans to expand in overseas markets to diversify its revenue stream

· Southern China Airline’s main competitors are Air China and China Eastern Airlines Corp.

· A high speed rail network, set to be completed in 2020, will compete directly with China’s domestic airline industry

· ZNH operates 160 domestic routes, of which 38 will compete directly with the new high-speed rail network

· China Southern Airline expects more than half of its 518 domestic weekly flights

· Train tickets are expected to be 40% cheaper than plane tickets when the new high-speed rail network opens in 2020

· Air China will expand domestically and internationally, with four new domestic routes and two new international routes

· International Air Transport Association (IATA) claimed that the lull in the airline industry has reached a bottom, however warned that a ‘recovery was still a long way off.’

Sources

http://www.csair.com/en/investor/index.asp

http://rail-news.com/2009/10/28/china-crisis-for-airline-industry/

http://www.tradingmarkets.com/.site/news/Stock%20News/2606324/

http://blog.taragana.com/n/trade-forum-sees-bottoming-out-in-airline-industry-210890/

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