Air China was affected by the COVID-19 epidemic, and as a result, the aviation demand dropped sharply for the year ended 31 December 2020. During this period, the Groups total revenue was RMB69,504 million representing a decrease of RMB65,977million or 50.65% as compared to last year. This resulted in a net loss for the group of RMB15,816 million for the year. Operating gearing (or operational gearing) refers to the mix of fixed and variable costs in a business and its ability to use its fixed costs to generate a profit. Required

(i) Explain what is meant by operating gearing, and giving reasons, explain whether the level of operating gearing for Air China is high or low.

(Note: you are not required to calculate the operating gearing level).

(ii) With regard to Air Chinas operating gearing level, discuss the implications of the COVID -19 epidemic on the companys financial performance.