1 Reform & Innovation ， Seeking New Opportunities for Air Cargo in China CATA Market Research Dept. QingYu Zhu March 26, 2008

2 1. Pride & Discouragement The Share of International Cargo ： Civil Aviation Transport Size ： No. 37 No. 2 70% 60% 30% 20% 80s 2006

3 Civil Aviation Is The Earliest Industry Entering The Internationalized Market ① 1960s-1970s,linked up international market. -- “Indirect through traffic, avoid to contact” ② End of 1970s, international airline act as“the general agent for each other”. -- “ Political Equity, Economical Alliance” ③ Middle of 1990s ， the“ general agent for each other” ended. ——“Equal traffic rights, liberalized operation” ④ 2001-present, opening of “International Integrated Market” ——“competing at different levels”

4 2. Status, Problems, and Bemusement (1) Compost of Conflict in Domestic and International Market ？ International Market Commercial service Domestic Market public service ？

5 (2) Emphasizing Market Competition In Excess Seeking for Enterprise’s Profit Target Maximization Enterprises Forget the Promise and Obligation of Public Service Gradually

6 (3) Short-Sighted Benefit of Public Resource Local airports only aim at attracting investment, improving management and service, and if carrying out the policy for investors to use airport’s public resource exclusively, it would affect the publicity and fairness of public resource usage.

7 (4) Rough Industry Data Information Emphasize production and scale, ignore industry chain connection; Emphasize internal capital and main product, ignore commercial market information; Rough data information.

8 (5) Shortage of Commercial Navigation Agreement “Mutual Exemption of Tax” term ， making the different airways in home and abroad be actually at an unequal status in the same market. Mutual Exemption of Tax

9 (6) Competition Gap Competition Aviation and surface“integrated industry chain” Lone “air” cargo company Foreign Airways ： Domestic Airways ：

10 AirwaysStorageDispatchDistribu- tion AgentExpress Value Added Logistics Traffic Integrated Industry Chain Mode of Competition Foreign Airways ： Loss ？

11 3. Development and Review separation of military and civil Separate governmental functions from enterprise management Introduce local investment Transform into join- stock enterprise Modern enterprise system Financing and IPO Loosen foreign capital access Give airport to local department Open 5th traffic rights Separation of primary and secondary subject Assets reconstruction State ebb and private flow Expand air service agreement Lift general agent agreement Simply examination and approval IATA access to domestic market Attend IATA, set up HK office Code share Aviation alliance

12 4. Reform, Innovation and Countermeasure （ 1 ） Know About Aviation Market Domestic aviation market = Simple domestic market —— Domestic airline + Domestic trade ——international airline market （ traditionally, its impact on domestic market is ignored. ）

13 Traditional view ： International Market abroad International Market in home reference Result in reference 国内 市场 Market confusion Domestic market Independent innovation ： reference International Market abroad International Market in home Domestic market Competition strength innovation

14 （ 2 ） Realize Two Market Strategies In Home and Abroad international market Maximize commercialbenefit Maximize public benefit domestic market Bottom line Target

15 （ 3 ） Enterprise (industry) Target In line With The Target of “ public benefit maximization ” Enterprisebenefit Public benefit Enterprisebenefit Public benefit Blue ocean Red ocean Enhancing competitiveness Weakening competitiveness

16 （ 4 ） Design Ordered Domestic Market Environment Market access + Enterprise promise + Market operation + Regulation constrain = Free competition + Market regime Legislation guarantee

17 （ 5 ） Enhance The Public Service Function of Airport Cargo Maintain The Equality And Fairness of Domestic Public Market Case ： HK International Airport Terminal and Other Commercial Facility Take the promised optimal public service benefit as the principle 1 、 investor satisfaction 2 、 customer satisfaction 3 、 public satisfaction 4 、 supervisor satisfaction

18 （ 6 ） Establish A Domestic Cargo Market Information Platform 1. Airport cargo operating data information 2. The 3rd Cargo party trading information platform (domestic neutral cargo order ） Information is productivity and competitiveness. —— Guaranteed by market regime effectively

19 （ 7 ） Care About The Negotiation Mostly care about the international market negotiation from marketing and economics. At the age of economic globalization, the market victory or defeat depends on the negotiation between governments. —— 《 The World Is Flat 》 Author: Thomas L. Friedman

20 5. The “ Integration ” Opportunity of the International Aviation Market More convenient traffic; More efficient service ； More advanced technology ； broader market ； More monopolized capital ； Stronger power status.

21 At the age of economic globalization and international aviation market integration, the target is easy to set up, but the recognition, path and method is not easy to grasp. China air cargo is at the critical developing time, and we should rely on domestic market to construct “ blue ocean ” market, in order to reform and innovate, free ourselves out of trouble and meet these challenges from the international air cargo market. Conclusion ：

22 THANK YOU ！