ATW Daily News

Restructuring JAL surges back to profit in FY07

Monday May 12, 2008

Japan Airlines Group announced a significant earnings turnaround to a net profit of ¥16.9 billion ($162.1 million) for the fiscal year ended March 31 from a loss of ¥16.2 billion the prior year on the back of premium strategies on its international operation and route restructuring on its domestic network.

The profit was achieved on a 3% drop in sales to ¥2.23 trillion as JAL disposed of a number of consolidated subsidiaries. In terms of air transportation, JAL Group's core business, revenue increased 1.4% to ¥1.82 trillion.

Leading the turnaround was international passenger demand bolstered by "premium strategies" launched over the past two years. International revenue increased 4% to ¥754.3 billion while domestic demand was stagnant due to a reduction in supply after the airline restructured its network. Domestic revenue crept up just 0.3% to ¥677.4 billion. It was able to slash operating costs 6.1% to ¥2.14 trillion and its operating income of ¥90 billion, up from ¥22.9 billion in FY06, was the highest since the 2002 integration with Japan Air System.

Net profit would have been much higher but for a series of extraordinary losses resulting from special early retirement programs, funds set aside for antitrust investigations by US and EU authorities and temporary depreciation costs (ATWOnline, April 17).

FY07 passenger numbers eased 3.8% to 55.3 million while RPKs declined at the same rate to 92.17 billion. Capacity fell 4% to 134 billion ASKs, lifting load factor 0.2 point to 68.7%.

Key to the group's dramatic renaissance was its focus on high-profit, high-growth routes and enhancing the role of its low-overhead international subsidiary JALways. JAL increased frequencies to China, India, Russia and Vietnam (ATWOnline, March 4). It also raised its profile through a greater commitment to oneworld, revamping lounges and check-in areas at Tokyo Narita's Terminal 2 and introducing JAL Premium Economy (ATWOnline, Oct. 11, 2007) and first class on some domestic flights (ATWOnline, Sept. 13, 2007).

It continues to rationalize its fleet through a shift to twin-engine aircraft and retirement of older 747s and MD-81s, and said that soaring fuel prices will result in accelerated disposal of five 747-200Fs that will be replaced by 767-300Fs on routes to China, Vietnam and Indonesia.

Going forward, JAL is forecasting a 23% drop in profit to ¥13 billion for FY09 due to escalating fuel prices and increased competition, particularly from the popular Shinkansen bullet train.

by Geoffrey Thomas

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