Annual Report 2016 CONTENTS Corporate Profile 2 Financial Highlights 3 Statement of the Board 4 Business Review 6 Management Discussion and Analysis of Financial Condition and Results of Operations 11 Corporate Governance Report 19 Environmental, Social and Governance Report 35 Report of Directors 50 Report of Supervisory Committee 79 Independent Auditor’s Report 80 Consolidated Statement of Profit or Loss and Other Comprehensive Income 86 Consolidated Statement of Financial Position 88 Consolidated Statement of Changes in Equity 90 Consolidated Statement of Cash Flows 91 Notes to the Consolidated Financial Statements 92 Supplementary Information from the Management 171 Corporate Information 172 Biographies of Directors, Supervisors, Senior Management and Company Secretary 176 TRAVELSKY TECHNOLOGY LIMITED Annual Report 2016 CORPORATE PROFILE TravelSky Technology Limited (the “Company”, or together with its subsidiaries, the “Group”) is the dominant provider of information technology solutions for China’s aviation and travel industry. The Group has been devoted to developing leading products and services that satisfy the needs of all the industry participants – ranging from commercial airlines, airports, air travel products and services suppliers to travel agencies, corporate clients, travelers and cargo shippers – to conduct electronic transactions and manage travel-related information. The core businesses of the Company include aviation information technology service, distribution information technology service, clearing and accounting and settlement service for aviation industry, etc. The Company was incorporated in the People’s Republic of China (the “PRC” or “China”) on October 18, 2000. As of December 31, 2016, it had a direct controlling equity interest in each of the following subsidiaries: Accounting Centre of China Aviation Limited Company (“ACCA”), TravelSky Technology (Hong Kong) Limited, TravelSky Technology (Singapore) Limited, TravelSky Technology (Korea) Limited, TravelSky Technology (Japan) Limited, TravelSky Technology (Europe) GmbH, TravelSky Technology (USA) Ltd., TravelSky Technology Australia Pty. Ltd, TravelSky R&D USA, INC., TravelSky Technology (Taiwan) Limited, Beijing TravelSky Technology Limited, TravelSky Mobile Technology Limited, Beijing HangJu Credit Management Co., Ltd., Shanghai TravelSky Information Technology Limited, Guangzhou TravelSky Information Technology Limited, Hunan TravelSky Information Technology Limited, Inner Mongolia TravelSky Information Technology Limited, Henan TravelSky Information Technology Limited, Zhejiang TravelSky Information Technology Limited, TravelSky Technology Huadong Data Center Limited, TravelSky CARES (Beijing) Real Estate Limited, Beijing TravelSky Travel Service Limited, Hainan Civil Aviation Cares Co., Ltd., Cares Shenzhen Co., Ltd., Cares Hubei Co., Ltd., Cares Chongqing Information Technology Co., Ltd., Aviation Cares of Yunnan Information Co., Ltd., Civil Aviation Cares of Xiamen Ltd., Civil Aviation Cares of Qingdao Ltd., Civil Aviation Cares Technology of Xi’an Ltd., Civil Aviation Cares Technology of Xinjiang Ltd., InfoSky Technology Co., Ltd., Shanghai Yeexing E-Business Limited, Beijing TravelSky Birun Technology Co., Ltd., Guangxi TravelSky Cloud Data Service Co., Ltd., Aviation Cares of Southwest Chengdu, Ltd. and Guangzhou Skyecho Information Technology Limited. The Company also held an equity interest in each of the following associated companies: Shanghai Civil Aviation East China Cares System Integration Co., Ltd., Shenyang Civil Aviation Cares of Northeast China, Ltd., Heilongjiang TravelSky Airport Technology Limited, Yunnan TravelSky Airport Technology Limited, Shanghai Dongmei Aviation Tourism Online Co., Ltd., Dalian TravelSky Airport Technology Limited, Hebei TravelSky Airport Technology Limited, Guangzhou Airport AirSpan Information Technology Co., Ltd. and Yantai TravelSky Airport Technology Limited. The Group had 7,255 employees as of December 31, 2016. The H shares of the Company were listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) (stock code: 00696) on February 7, 2001. As of the date of this report, the largest shareholder of the Company is China TravelSky Holding Company, which holds an equity interest of approximately 29.29% in the Company. A total of approximately 38.84% of the equity interest in the Company is held by 13 Chinese commercial airlines, including the holding companies of the three largest Chinese commercial airlines, namely, China Southern Air Holding Company, China Eastern Air Holding Company and China National Aviation Holding Company. The remaining 31.87% of the equity interest in the Company is held by holders of its H shares. The Company has established a Sponsored Level I American Depositary Receipt Programme. American depositary shares under the programme commenced trading on the U.S. over-the-counter market (OTC) on December 27, 2002. 2 Annual Report 2016 TRAVELSKY TECHNOLOGY LIMITED FINANCIAL HIGHLIGHTS Profit Attributable to Owner of Earnings Per Share Total Assets the Parent (Basic and Diluted) RMB’000 RMB’000 RMB 2,500,000 1.0 20,000,000 2,421,114 18,130,664 0.83 2,000,000 0.8 1,914,362 15,000,000 14,871,195 1,652,589 0.65 12,729,607 1,500,000 0.6 0.56 11,141,535 9,880,912 1,205,732 10,000,000 1,132,881 0.41 1,000,000 0.4 0.39 5,000,000 500,000 0.2 0 0.0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Revenues Profit before Taxation Earnings Before Interests, Tax, RMB’000 RMB’000 Depreciation and Amortisation RMB’000 8,000,000 3,000,000 3,500,000 2,869,646 3,216,801 7,000,000 2,500,000 3,000,000 6,223,267 2,692,372 6,000,000 2,317,358 2,500,000 5,471,831 5,336,412 2,000,000 2,223,566 5,000,000 1,904,968 4,509,311 2,000,000 4,000,000 4,060,518 1,500,000 1,586,946 1,304,208 1,629,781 1,312,419 1,500,000 3,000,000 1,000,000 1,000,000 2,000,000 500,000 1,000,000 500,000 0 0 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Note: 1. Earnings per share were calculated on the basis of total number of shares in issue of 2,926,209,589 shares as at December 31, 2016. 2. The financial statements for the year 2010 have been adjusted due to changes in accounting policies in 2011. 3 TRAVELSKY TECHNOLOGY LIMITED Annual Report 2016 STATEMENT OF THE BOARD Cui Zhixiong Chairman DEAR SHAREHOLDERS, In 2016, the Group strived for reformation and was open for cooperation, and actively coped with challenges from such complicated market conditions. The Group has improved certain aspects such as safety protection, technological innovation, joint venture and cooperation, business transformation, management reformation and infrastructure development to a new level, leading to a steady growth in its operating results and hence a positive start of the 13th Five-Year Plan. 2017 is a critical year of implementation of the 13th Five-Year Plan and comprehensive enhancement of the reformation. Being at the intersection of the civil aviation industry and information service industry, the Group encounters both opportunities and challenges at the same time. On one hand, the market base remains solid. The PRC is at the critical stage of evolving from an advanced country in civil aviation to a country with dominating power in civil aviation; tourism in China is gradually uplifted to a level close to the major tourism countries worldwide; the PRC has pushed forward the national cyber development strategy, the Internet Plus Action Plan, and the national big data strategy; and the requirements in informatization level and network information security in civil aviation industry have been upgraded. All these have brought forth development opportunities for the Group to utilize its experiences and technological advantage. On the other hand, the constantly changing industry landscape further added to the market pressure on the Group. New technologies, new products, new operating models and new business models have been emerging at an increasingly hectic pace. Overseas competitors have been continuously penetrating the domestic market. The industry also saw augmenting concentration in channels. The needs of commercial airlines for information technology solutions have been changing. Ever higher standards of service have been expected of commercial airlines. 4 Annual Report 2016 TRAVELSKY TECHNOLOGY LIMITED STATEMENT OF THE BOARD In this connection, the Group will build on its existing results and development in strengthening its core businesses, developing new businesses, raising its capabilities and strengthening areas of weakness through pursuing its strategies and carrying out reforms. Firstly, the Group will lay a solid foundation in safety and security matters by enhancement of corporate mechanisms, enforcement of accountability, inspection of risks, and ensuring that the relocation and operation of the new operating centre in Shunyi, Beijing proceed smoothly, enhancing its support capabilities of operational safety and information security. Secondly, the Group will switch to a growth strategy of raising the quality of development and enhancing its research and development and service capabilities, guided by technological innovation, driven by capital operation and coordinated through resource allocation. Thirdly, the Group will speed up the transformation and upgrade of its businesses by solidifying the advantages of its core businesses, pushing ahead the integration of new businesses and seeking breakthroughs in overseas businesses, in order to enhance