China Southern

Scheduling & Market Analysis November 2012

Executive Summary
Potential for CZ to operate a split schedule to boost connectivity via CAN A split schedule maintains good connections to major Chinese cities and improves connections to LHR, ICN & NRT For the schedule to work effectively, it would be preferable for CAN-PER-CAN to be increased to 4/weekly with each 2 flights operating at different times of the day The schedule provides for same-day connections to LAX, CDG, & AMS however some connecting vary from 4 hours up to 8 hours These connecting times can be improved but will require forgoing connections to major cities in China in one direction or rescheduling the LAX/CDG/AMS flights

Cathay Pacific has relatively small market share to LAX, CDG, & AMS opportunity for CZ Important for CZ to have an efficient connecting product in CAN other Asian and Middle East carriers do this very well

CZ Connections in CAN

CAN Hub Makes Sense for Perth Travellers

Flight times compare well with existing hubs such as HKG CAN PEK PVG ICN YVR LAX LHR CDG AMS
8,006km 7,332km 8,133km 16,351km 17,768km 15,642km 15,603km 15,286km

HKG
7,994km 7,261km 8,074km 16,295km 17,691km 15,654km 15,614km 15,298km

SIN
8,369km 7,689km 8,509km N/A 18,009km 14,783km 14,625km 14,412km

KUL
8,523km 7,911km 8,726km N/A N/A 14,734km 14,571km 14,365km

SYD
12,218km 11,121km 11,595km 15,768km 15,335km N/A N/A N/A

DXB
N/A N/A N/A N/A N/A 14,531km 14,272km 14,201km

Travelling via CAN offers competitive total journey times to Perth compared with other existing hubs
Source: Great Circle Mapper 4

Opportunity to improve connections to Canton Route and to other key markets

Key connecting markets
Flight CZ328 CZ348 CZ308 CZ340 CZ3098 CZ338 CZ390 CZ330 CZ304 CZ386 CZ398 From LAX CDG AMS ICN TPE ICN KIX YVR LHR NRT MNL Arrive CAN 05:20 06:10 06:45 12:25 16:35 17:00 17:15 17:20 18:30 19:30 20:00 X Depart CAN 21:30
3 Hours

Flight Arrive PER 05:40+1 Arrive CAN 17:15 X CZ347

To CDG

Depart CAN 00:20

X
X X

X
X X X X X X X X

CZ389
CZ3091 CZ337 CZ303 CZ385 CZ3097 CZ329 CZ339 CZ327 CZ307

KIX
MNL ICN LHR NRT TPE YVR ICN LAX AMS

08:30
08:50 09:05 09:30 09:30 11:30 14:00 17:15 21:30 23:55

Depart PER 08:50

Scheduling is a key success factor to capture market share Current connections to key European, North American, and North Asian markets require long layovers, making it difficult for China Southern to compete with other airlines offering shorter connecting times Opportunity to schedule flights with limited connecting times & capture larger share of connecting traffic Need to continue offering good connections throughout China
Source: AirportIS, KVSTool 5

Connections to LAX, CDG, and AMS conflict with connections to key Chinese cities
Flight CZ328 CZ348 CZ308 From LAX CDG AMS Arrive CAN 05:20 06:10 06:45 Depart CAN 08:45 Arrive PER 16:55

To provide direct connections from LAX, CDG, and AMS to PER means forgoing connections from key Chinese cities Arrival into CAN from SHA and PEK start from 11:15am
Flight CZ327 CZ307 CZ347 Depart PER 11:00 Arrive CAN 19:25 To LAX AMS CDG Depart CAN 21:30 23:55 00:20

To provide direct connections from PER to LAX, CDG, and AMS as well as key Chinese cities means the flight from PER will need to arrive in CAN early to meet the last departures to SHA and SHE The last departures from CAN to SHA and PEK are at 19:40 and 20:00 respectively
Source: AirportIS, KVSTool 6

Split schedule scenario: potential for better connections to key cities with alternate CAN-PER-CAN schedule
Flight CZ328 CZ348 CZ308 CZ3391 CZ3596 CZ3108 CZ3548 CZ6301 CZ340 From LAX CDG AMS CGO SHA PEK SHA SHE ICN Arrive CAN 05:20 06:10 06:45 10:20 11;15 11:45 12:15 12:20 12:25 Depart CAN 14:00 Depart PER 23:20 Arrive PER 22:10
1 Hours 10 mins

Flight CZ337 CZ385 CZ303 CZ3531 CZ345 CZ3599 CZ3537 CZ3103 CZ3392 CZ3799 CZ3097 Flight Depart CAN 21:30 Depart PER 08:50 Arrive PER 05:40
3 Hours 10 mins

To ICN NRT LHR SHA PEK NKG SHA PEK CGO TAO TPE To PEK SHE SHA

Depart CAN 09:05 09:30 09:30 10:00 10:00 10:10 11:00 11:00 11:10 11:20 11:30 Depart CAN 19:00 19:40 20:00

Arrive CAN 07:35

Flight CZ338 CZ3395 CZ390 CZ3538 CZ330 CZ323 CZ3800 CZ3822 CZ304 CZ3104 CZ361 CZ3526 CZ386

From ICN CGO KIX SHA YVR PEK TAO NKG LHR PEK CGO SHA NRT

Arrive CAN 17:00 17:00 17:15 17:15 17:20 17:45 18:05 18:25 18:30 18;45 18;45 19:25 19:30

CZ3105 CZ6302 CZ3595

Arrive CAN 17:15

CZ320
CZ382 CZ3620 CZ3107 CZ327 CZ307 CZ347

PEK
PEK CGO PEK LAX AMS CDG

20:00
20:00 20:35 21:00 21:30 23:55 00:20
7

Source: AirportIS, KVSTool

Analysis of Split Schedule

Strengths of the split schedule Good connections to major Chinese cities Good connections to LHR in both directions Good connections to ICN in both directions Good connections to NRT in both directions; Connections to TPE in both directions although connecting times are 4-5 hours

Weaknesses of the split schedule While the schedule provides for same-day connections to LAX, CDG, & AMS, the connecting times vary from 4 hours up to 8 hours YVR only connects well in one direction KIX only connects well in one direction No connections to MNL

Comparison to Cathay Pacific via HKG

Opportunity for CZ to LAX, CDG, & AMS City LAX Current Cathay Schedule to/from PER 3/week only with good connections CX Market Share 3.4%

CDG
AMS LHR ICN NRT KIX TPE MNL

3/week only; poor connections

3/week only; poor connections Good connections Good connections Good connections Good connections Good connections Good connections

3.8%
4.8% 8.7% 38.4% 28.3% 31.9% 28.4% 18.7%

Opportunity for CZ to gain market share in LAX, CDG, and AMS where CX is weak, but it is difficult to create schedule that offers good connections in these markets

Source: KVSTool; All market shares from AirportIS apart from MNL (DIAC)

Size of Potential Connecting Markets

City LAX CDG Total Market Size (FY12) 68,000 47,000 Market Description

Largest North American market from PER; competitive; good yields; longer distance compared to via east-coast Australia
Second largest Euro market after the UK; competitive; good yields; longer distance compared to DXB, SIN

AMS
LHR ICN NRT TPE

25,000
240,000 25,000 28,000 22,000

6th largest Euro market; competitive; satisfactory yields; longer distance compared to DXB, SIN
Largest market; very competitive; longer distance compared to DXB, SIN; Limited number of competitors, all one-stop; strong yields; comparable distance to HKG Limited number of competitors, all one-stop; strong yields; comparable distance to HKG Competition is full service and LCCs, all one-stop; satisfactory yields; comparable distance to HKG & SIN

Source: Total Market Sizes from AirportIS are grossed-up by passenger card data (DIAC)

10

Connecting markets via CAN

11

Top Markets to & from Perth

Country of Residence/Future Stay Indonesia UK Singapore Malaysia Thailand USA New Zealand China South Africa India Hong Kong Philippines Japan France Germany Italy Vietnam Ireland Canada UAE Other Total Residents 714 067 165 068 171 984 152 978 171 330 103 162 53 355 53 961 52 070 41 272 43 716 30 781 25 338 26 919 15 700 29 952 40 670 10 024 23 994 13 388 202 903 2 057 344 FY11 Visitors 64 954 240 236 164 877 131 794 24 974 58 005 67 571 44 345 44 869 29 573 30 334 18 851 45 366 20 493 33 301 14 356 7 611 23 245 21 558 13 082 173 641 1 229 776

CAN is a logical connecting point for the below highlighted countries

Total 779 021 405 304 336 860 284 772 196 304 161 167 120 926 98 306 96 940 70 845 74 049 49 632 70 703 47 412 49 000 44 308 48 280 33 269 45 552 26 471 376 544 3 287 119 Residents 755 008 178 099 173 931 150 123 208 572 112 084 60 727 64 493 50 163 44 612 45 623 38 619 22 165 29 881 17 758 36 575 45 068 14 731 25 874 15 930 226 898 2 230 385 FY12 Visitors 68 078 236 814 155 380 130 685 23 456 67 339 70 850 54 987 47 258 32 023 30 432 20 857 33 490 22 706 34 602 15 736 6 143 34 526 23 243 12 990 196 743 1 273 992 Total 823 086 414 913 329 311 280 808 232 029 179 423 131 577 119 479 97 420 76 636 76 055 59 476 55 655 52 588 52 359 52 311 51 211 49 257 49 117 28 920 423 641 3 504 377 FY12 v FY11 % change 6% 2% -2% -1% 18% 11% 9% 22% 0% 8% 3% 20% -21% 11% 7% 18% 6% 48% 8% 9% 13% 6.6%

Key differences from AirportIS UK market is 2nd highest SIN moves to 3rd USA and Canada are based on Western Australia as state of residence to include traffic via east-coast Australia
12

Source: DIAC

London (LHR)
UK is the Second Largest Market from Perth
History of PER-UK Market
Pax (000's)
450 400
EK 21%

Market Share of Carriers for Perth - LHR

MH 12% CX 9% BA 5%
BI 4% TG 2% SQ 22% QF 24% Other 1%

350
300 250 200

150
100 50

0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

The Perth-UK market is ~400,000 pax with LHR 60% of the market QF has the highest PER-LHR market share although EK has highest UK market share with a range of 1-stop options

LHR via DXB is ~1,100km shorter than via CAN

The market is very competitive with 9 airlines offering 1-stop services Gaining market share will require good connections with competitive fares

Average fare of $1,159 equates to a yield of 8 US cents/km

16.5% of pax are in business or first class
13

Source: Department of Immigration and Citizenship (DIAC); AirportIS; Gcmap

Paris (CDG)
History of PER-France Market
Pax (000's)
60

Market Share of Carriers for Perth - Paris

QF 12% MH 11% AF 10%

50
40 30
SQ 20%

CX 4% CZ TG 3% 2% Other 3%

20
10

0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

EK 35%

EK largest market share twice daily PER-DXB connecting to twice daily CDG CDG via DXB is ~1,300km shorter than via CAN Market is not quite as competitive as LHR, but will still require good connections to compete with existing carriers Total France pax 53k in FY12, an increase of 11% YOY; 8-year average growth rate of 13%; CDG 89% of total France market Visitor arrivals for business up by 42% & arrivals for employment up by 59% (total France) Average fare of $1,547 equates to a yield of 10.85 US cents/km which is higher than LHR Strong demand for premium seats: 23.5% of pax are in business or first class
14

Source: Department of Immigration and Citizenship (DIAC); AirportIS; Gcmap

Amsterdam (AMS)
History of PER-Netherlands Market
Pax (000's)
30

Market Share of Carriers for Perth - AMS

SQ 19%

25
20 15

KL 14%
QF 7% CX 5% CZ 3%

10
5

EK 23% MH 27%

Other 2%

0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

MH has the largest market share MH PER-KUL-AMS as well as codeshares with KLM AMS via KUL is ~900km shorter than via CAN 25k pax in FY12 to the Netherlands, an increase of 12% YOY 65% of the Perth-Netherlands market are Visitors (Non-Residents) 60% of Visitor arrivals from the Netherlands are for holiday & VFR, remainder for business or employment Average fare of $1,239 equates to a yield of 8.75 US cents/km
15

Source: Department of Immigration and Citizenship (DIAC); AirportIS; Gcmap

Los Angeles (LAX)

Average growth of 8% from FY07 to FY12
History of WA-LAX Market
Pax (000's)
80 70 60 50 40 30 20
VA 14%

Airline Market Share for PER-LAX

UA 5% NZ 11%
CZ 5% CX 3% MH EK SQ 3% 2% 2% DL 1% Other 2%

10 0 FY07 FY08 FY09 FY10 FY11 FY12

QF 52%

Qantas dominates although market share has declined with increased competition across the Pacific Three quarters of traffic via east coast Australia this is the shortest route LAX via SYD is ~2,400km shorter than via CAN PER-LAX market grew by 9% in FY12 to ~68k pax Australian residents 62% of the total USA market, helped by continued strength of Australian Dollar Perth-LAX has an average fare of $1,498 and strong yield of 10 cents US/km
Source: Department of Immigration and Citizenship (DIAC); AirportIS; Gcmap 16

Tokyo (NRT)
Japan Market Likely to Recover
SQ has the highest market share closely followed by CX both have good connections and frequency 10th largest inbound market & 13th largest overall 51% NRT; 20% KIX; 14% HND; 6% NGO Market 60% inbound visitors High level of business travel Japan is Western Australias second largest trading partner Average PER-NRT fare is $1,318 with a high yield of 16.65 US cents/km Affected by natural disasters & cancellation of QF service May-11 Japan market now all indirect (via SIN & HKG) opportunity for good connections or to capture market share & grow market
History of PER-Japan Market
100 90 80 70 60 50 40 30 20 10 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12
Source: Department of Immigration and Citizenship (DIAC)
Pax (000's)

Market Share of PER-Japan Pax by Airline FY12 (DIAC)

QF 12% CX 31%

MH 8%

GA 5% D7 4% TG 3% Other 4%

SQ 33%
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Seoul (ICN)
History of PER-Korea Market
Pax (000's)

Market Share of Carriers for Western Australia-Korea Market FY12 (DIAC)

30
25
MH 9% SQ 18%

QF 9%

D7 5%

KE 5%

GA 5%

20
15

Other 13%

10 5
0
CX 36%

FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

CX has almost half of the market (46%) - good connections via HKG Perth Korea market growth averaged 10% for last 5 years, including 9% growth in FY12 AirportIS shows 95% of pax going to ICN, 5% going to PUS

Immigration data shows 69% of traffic is Korean residents

Korea is Western Australias third largest trading partner High level of business traffic with Korean companies investing billions of dollars in WA ICN via CAN is a competitive distance compared to via SIN & HKG

Average fare is $979 with a strong yield of 12.61 US cents/km

Source: Department of Immigration and Citizenship (DIAC) , PAPL analysis of FY12 AirportIS 18

Overview of data sources used in this presentation

The Australian Department of Immigration and Citizenship (DIAC) supplies data based on incoming and outgoing passenger cards Immigration data provides key fields such as the Country of (Intended) Residence and the State of (Intended) Residence in Australia

Immigration data provides country data only and not city/airport data

IATAs AirportIS supplies data based on passenger bookings made via travel agencies and also includes some data provided by airlines AirportIS provides city/airport data based on airline tickets

AirportIS typically understates markets where there is a large proportion of stopover traffic and for low cost carriers In this presentation, city information taken from AirportIS has been grossed-up by the country information from DIAC to better reflect the size of a market
19

Source: PAPL Analysis