Sustainability Management Overview
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CHAPTER 1 Sustainability Management Overview 1-1 About China Airlines 1-2 Sustainability Strategies and Goals 1-3 True Value of China Airlines 1-4 Sustainability Management Structure 12 GRI 102-2, 102-3, 102-4, 102-6, 102-7 About China 1-1-1 Business Overview 1-1 China Airlines (2610) is the largest airline in Taiwan. Based in Taiwan Taoyuan International Airport, CAL mainly provides Airlines international passenger and freight air transport services. CAL also has two subsidiary airlines: Mandarin Airlines and Tigerair Taiwan. Mandarin Airlines serves domestic and regional markets, while Tigerair Taiwan offers a low-cost business model. With a multi-brand strategy, members of the CAL Group share resources and complement one another's strengths and weaknesses to provide a variety of options for customers based on an established network. For more information on the business development of the fleet and route network, refer to CAL's Annual Report. Through Number of codeshare agreements with other airlines, the CAL Group offered flights to / from 29 countries and 160 destinations worldwide Destinations 17 as of the end of December 2019, while Tigerair Taiwan flies to 22 destinations on 29 routes. Europe 85 Asia (Note) 47 China Airlines Mandarin Airlines 5 Americas Taiwan TWD 54.2 billion 12,110 91 TWD 2 billion 6 Capital Employees Fleet Size Capital Oceania Taoyuan Headquarter (No.1, Hangzhan S. Rd., Dayuan Dist., Taoyuan City) 1,023 13 Employees Fleet Size Note: Excluding Taiwan Note: The latest operating fleet number please refer to the website. Taipei Headquarter (No.3, Alley 123, Ln. 405, Dunhua N. Destinations (including the CAL Group and code-shared routes) Rd., Songshan Dist., Taipei City) Country 29 Destination 160 Note1: Statistics as of December 31, 2019. Tigerair Taiwan Note2: The latest destinations please refer to the website. TWD 2 billion Passenger Load (including the CAL Group) Capital China 80.3% Oceania 78.9% 711 11 Employees Fleet Size Hong Kong 73.8% Americas 84.1% Taipei Northeast Asia 80.4% Europe 80.3% Headquarter (No.3, Alley 123, Ln. 405, Dunhua N. Southeast Asia 79.8% Rd., Songshan Dist., Taipei City) 13 CAL Group's Operational Achievements GRI 201-1 Individual Financial Statement (Unit: TWD billion) CAL's management and employees continuously work to strengthen its operational structure Item 2016 2017 2018 2019 through a variety of improvement strategies and integration of Group businesses. The aviation market encountered extreme stress in 2019; the Anti-Extradition Bill movement in Hong Operating Revenue 127.52 139.82 150.26 146.37 Kong and curbs on China's group tours took a toll on passenger transport; freight transport was affected by the global trade slowdown caused by the Chinese-US trade war, resulting Operating Cost 112.25 121.85 137.62 135.01 in negative growth as a whole. Consolidated operating revenue totaled TWD 168.44 billion, comprising TWD 111.41 billion from passenger transport, TWD 43.79 billion from freight Operating Expense 10.80 10.61 10.80 11.28 transport, and TWD 13.24 billion from other segments. Consolidated net loss before tax was TWD 97 million. For more information, refer to the "Financial Performance" in the Appendix. Income Tax Expense (Interest) 0.97 0.88 0.53 0.01 Salary Expenses 14.18 15.18 15.01 14.48 Operational Achievements An Analysis of Employee Benefits 19.72 21.22 21.55 21.97 168.44 billion 97 million Expense by Function Consolidated Pretax Loss Operating Revenue Post-employment Benefits 1.05 1.24 1.69 1.62 111.41 billion Passenger Revenue 2019 Performance of International Passenger and Freight Transport 13.24 billion Passenger Transport Freight Transport Other Revenue Company Flights Tonnage Passengers Market Share Market Share (Metric Ton) 43.79 billion Cargo Revenue 75,970 13,900,100 23.45% 847,056 37.37% Consolidated Financial Statement (Unit: TWD billion) Item 2016 2017 2018 2019 34,379 1,288,578 2.17% 14,589 0.64% Passenger Revenue 95.28 102.22 108.35 111.41 Cargo Revenue 35.72 43.33 49.85 43.79 18,537 2,783,726 4.70% 857 0.04% Other Revenue 10.08 10.57 12.52 13.24 Total 128,886 17,972,404 30.32% 862,502 38.05% Consolidated Operating Revenue 141.08 156.12 170.71 168.44 Source : Civil Air Transportation Statistics, “Table 16: Market Share of International and Cross-Strait Passenger and Freight Pretax Profit 1.88 3.52 3.08 -0.097 Transport of National Airlines, and Table 18: Passenger and Freight Traffic of Global Lines by National Airlines." Civil Aeronautics Administration, M.O.T.C. 14 1-1-2 Business Environment in the Aviation Industry International dealings between passengers and freight rely heavily on air transport; therefore, air transport is a derivative need, and its volume is greatly affected by the social and economic environment. According to statistics released by the International Air Transport Association (IATA), civil aviation transport operators carried 4.5 billion passengers and 250 million tons of freight in 2019. This in turn created an output of USD 873 billion and 70.4 million job opportunities, and contributed 1.0% of the global GDP. This shows that air transport promotes the development of society and the economy, and vice versa. CAL has routinely adjusted its Sustainability Strategy by reviewing the business environment of the aviation industry, as well as undertaking stakeholder engagement and materiality analysis to strengthen its long-term development. Business Opportunities • Growth of Global Air Transport Remains Optimistic, with Asia-Pacific Region Higher than To continue expanding into more quality markets worldwide, CAL pursued two strategies: Average Increasing international marketing outlets and consolidating operations for key prospects; According to IATA statistics, revenue passenger kilometers (RPK) and freight tonne and expanding cross-border, cross-domain, and cross-industry cooperation, while kilometers (FTK) have increased by an average of 6.8% and 4.5%, respectively, worldwide improving the competitiveness of Taiwan's tourism. According to statistics published by over the past five years. Due to economic growth in emerging markets and the rise of the the Tourism Bureau of the Ministry of Transportation and Communications, there were middle class, RPK and FTK in the Asia-Pacific region have maintained growth rates of 8.5% approximately 11.84 million visitors to Taiwan in 2019, an increase of about 7% over the and 2.3%, respectively, with RPK growing at a faster pace than in other regions worldwide. 11.07 million in 2018. Visitors from China increased by a slight 0.5%. Visitors from countries Looking to 2019 and regardless of tensions from the China-US trade war, global air other than China increased by a strong 9%; in particular, total visitors from Japan exceeded transport will continue growing at a slow pace thanks to expansionary fiscal policies and 2 million on December 9, 2019. Visitors from Japan and South Korea both hit record highs, easing monetary policies. with an increase of 10%–20% each. Visitors from the 18 southbound countries increased by about 6%. This shows that the New Southbound Policy helped drive the development of the In 2020, the international air passenger and freight markets are expected to grow by 4.1% civil aviation industry. and 2.0%, respectively. In the Asia-Pacific region, volume and capacity growth rates are estimated at 4.8% and 5.5%, respectively. Compared with 2019, overall market has shown a • E-commerce Is Gradually Transforming the Air Cargo Market slight downward trend. This is the first time in recent years that capacity has grown faster In the 2000s, internet technology gradually matured. E-commerce models have advanced than volume. With the recent effects of the novel coronavirus (COVID-19) outbreak, the IATA from portals and search engines, to business to business (B2B), business to consumer (B2C), has lowered global RPK by 0.6% and RPK in the Asia-Pacific region by 8.2%. and consumer to consumer (C2C). With the popularity of internet access, consumers start to shop via virtual channels, leading to the replacement of physical channels by fast-growing • Market Liberalization Sweeps Asia-Pacific Countries e-commerce. Air rights are critical to an airline's route network and destinations, as well as to aviation markets. Except for restrictions on cross-strait destinations, Taiwan has entered into open- • CAL Introduces Modern, Efficient Fleets skies agreements with the United States, Australia, Singapore, Malaysia, and Thailand. CAL has continued to update our fleet, and has introduced new aircraft and short-haul Existing airlines are offering additional flights, and new airlines have been granted air flights. We are expecting to introduce the Boeing 777 Freighter (777F) in 2020, and the rights to provide consumers with more options. In addition, ASEAN has actively entered Airbus A321neo family of narrow-body jet airliners in 2021. To offer improved in-flight into the ASEAN Multilateral Agreement on Air Service to create a single aviation market, service and product consistency, CAL is currently introducing portable Wi-Fi streaming which significantly reduces restrictions on civil aviation transport operators in ASEAN and audio / video products on the Boeing 737-800, refurbishing the Airbus A330-300 cabin promotes the growth of aviation markets in the Asia-Pacific region. interior, and upgrading products and Wi-Fi signal receivers on the Boeing 777-300ER and the Airbus A350-900 Premium Economy. In the future, the Airbus A321neo family will have • Policy Supports Travel Demand in Taiwan state-of-the-art cabin equipment, including full-flat seats in Business Class; lightweight, Since 2016, the government of Taiwan has implemented the New Southbound Policy, ergonomic seats in Economy Class; and 4K high definition in-flight entertainment which focuses on "economic and trade cooperation, talent exchange, resource sharing, and systems with the industry's fastest Wi-Fi, to provide more entertaining, comfortable travel regional connectivity" to strengthen strategic partnerships with 10 countries in ASEAN, 6 experiences to every passenger.