JAL Group reports net profits of 12.7 billion yen

The JAL Group (JAL) announced today, the consolidated financial results for the first quarter (April 1 – June 30, 2011) of FY2011, the fiscal year ending March 31, 2012.

The airline has been striving to improve profitability by downsizing its fleet to smaller, more fuel-efficient aircraft, implementing measures to stimulate travel demand, and by more flexibly and swiftly matching demand with supply so as to strengthen its resilience in an ever volatile operating environment. JAL underwent a rigorous restructuring last year which saw the suspension of unprofitable routes, withdrawal of operations from 11 overseas and 8 domestic destinations, and the decommissioning of large-sized aircraft from its fleet which collectively led to a significant reduction in operating expenses. Through scaling down the size of its operations, JAL lowered various fixed cost liabilities, and further raised its efficiency through the institution of a system that analysed profits by department. As a result of these concerted efforts, the airline group is reporting an operating profit of 17.1 billion yen from total operating revenues of 254.9 billion yen, and a subsequent net profit of 12.7 billion yen in the first quarter of FY2011.

(1) JAL Group Consolidated Results for the Period April 1, 2011 – June 30, 2011

FY2011 First Quarter
(April 1, 2011 – June 30, 2011)

Total Operating Revenue
254.9

International Passenger
Domestic Passenger
International Cargo
Others
78.8
100.4
13.8
61.7

Total Operating Expense
237.7

Operating Income (loss)
17.1

Ordinary Income (loss)
15.9

Net Income (loss)
12.7

Unit: Billions of yen.
Figures are rounded down to the nearest tenth of a billion yen.

(2) Air Transportation Segment

International Passengers

Capacity during this three-month period, measured in available seat kilometers (ASK) shrank 29.4% versus previous year following a series of route suspensions carried out from the second half of fiscal year 2010, and the retirement of all Boeing 747-400 jumbo jets from the airline’s fleet at the beginning of March this year. Furthermore, in the months after the Great East Japan Earthquake, JAL temporarily reduced flight frequencies on select routes and switched to smaller aircraft in response to the decline in traffic demand during that period.

As a result of the situation in Japan in the wake of the disasters, the number of group tours and inbound visitors fell sharply. Although outbound business traffic from Japan was affected to a lesser degree and rebounded more swiftly than the leisure sector, the overall travel demand in terms of revenue passenger kilometers (RPK) between April and June declined 40.2% from the same period last year. Consequently, the load factor declined 11.0 percentage points from a year earlier to 61.1%.

The commencement of the joint business agreement over the Pacific with oneworld alliance partner American Airlines (American) on April 1 this year enabled both carriers to offer customers in and out of Japan greater benefits and convenience such as shortened connection times and smoother transfers from the adjustments of their respective flight schedules. JAL also started to strongly promote outbound leisure travels as longer, and more staggered vacation periods are encouraged and implemented in Japan to conserve energy this summer. Operating revenue from the international passenger segment for the first quarter this fiscal year is 78.8 billion yen – representing 30.9% of total operating revenues.

Domestic Passengers

JAL completely retired all Boeing 747-400s at the end of FY2010, and its fleet of Airbus 300-600R aircraft from domestic operations at the end of May this year, in the process of downsizing. To minimize operating expenses, the airline also acted swiftly to reduce frequencies of scheduled flights temporarily after the Great East Japan Earthquake considerably affected travel demand. On the other hand, JAL pooled together its existing resources to operate extra flights to airports north of Japan, in Yamagata, Hanamaki, Akita and Sendai between the months of March and June. Additionally, larger aircraft were used on several scheduled flights between Tokyo, Haneda and Aomori and Akita. The overall effect on capacity is a contraction of 26.6% against last year, in terms of ASK.

The extra flights and larger aircraft operated by JAL catered to the travel needs as land transportation to parts of the northern region of Japan in the days that followed the disaster was disrupted due to the damages sustained by the highways and railroads in the area. JAL has moreover been boosting demand through various efforts such as enhancing in-flight services with new beverages and products through cooperation with various vendors, implementing services which allows customers to more conveniently make bookings with their iPhones or android smartphones, extending special discount fares for select regions to encourage weekend getaways, and by extending advance booking requirements for certain fares from 3-days prior to 1-day prior so as to capture more demand. In another major initiative termed JAPAN PROJECT, JAL is singling out a prefecture each month to feature its unique qualities and attractions in the airline’s in-flight magazines, videos and other marketing tools and thereby promote local destinations and stimulate domestic travel. These activities have contributed to 100.4 billion yen in operating revenues from the domestic passenger segment, which represents 39.4% of overall operating revenue, for the three months to June.

Based on RPK, domestic travel demand during this reporting period is 29% under last year – close to the degree of change in capacity during this reporting period and thus resulting in a 1.9 percentage point drop in load factor from last year to 56.1%.

International Cargo

JAL has been focusing on expanding high-value cargo services, in particular the transportation of temperature-sensitive freight with special temperature-controlled containers, and leveraging the internationalization of Haneda airport to promote the connections between international and domestic flights and boost air cargo transportation to and from local regions. There was a rise in transportation needs for emergency relief items such as batteries, water, as well as automotive parts and tobacco after the earthquakes and tsunami on March 11 this year, amidst generally lower air freight demand. Cargo capacity on JAL has been decreasing since last year and consequently reducing the volume carried. In terms of revenue cargo ton-kilometer (RCTK), demand this first quarter versus the first quarter last year is 53.9% down, with operating revenues of 13.8 billion yen.

(3) JAL Group Consolidated Financial Condition

FY2011 First Quarter
April 1 – June 30, 2011
FY2010
As of March 31, 2011
Difference

Total assets (billion yen)
1,172.4
1,206.5
– 34.0

Net assets (billion yen)
225.6
218.2
7.4

Capital adequacy ratio *1(%)
17.5
16.5
+ 1.0 pt

Interest-bearing debt *2(billion yen)
458.5
484.0
-25.4

Debt/Equity Ratio *3
2.2
2.4
-0.2 pt

Figures are rounded down to the nearest tenth of a billion yen.
1. Shareholders equity is total net assets excluding minority interests
2. Debt-to-equity ratio is interest-bearing debt divided by shareholders equity