JAL Group announces consolidated financial results for the nine months ended December 31, 2014

During the reporting period of consolidated financial results for the nine months of the fiscal year (April 1, 2014 to December 31, 2014) (hereinafter referred to as the “third quarter”), the Japanese economy continued to recover moderately, while consumer spending, etc. weakened. Looking abroad, economic recovery remained on track including the U.S. economy, despite weaker trends observed in certain areas. Exchange rate fluctuations, which affect company profits, remained stable until August, but the Japanese yen weakened sharply from September and aviation fuel prices dropped dramatically from October.

Under these economic conditions, we strived to increase management efficiency and provide customers with unparalleled service with safety as our top priority in order to achieve our targets set out in Rolling Plan 2014 for the Medium Term Management Plan announced on March 26, 2014.

As a result, operating revenues in the third quarter was 1022.3 billion yen (up 3.3% year-on-year), operating expenses was 884.1 billion yen (up 3.7% year-on-year), and consequently, operating income came to 138.2 billion yen (up 0.5% year-on-year), ordinary income was 137.4 billion yen (up 4.8% year-on-year), and net income was 119.6 billion yen (down 3.1% year-on-year).

ir Transportation Segment

International Passenger

In international passenger operations, we maximized revenue by expanding Boeing 787 operations and improved products and services by increasing flights offering new seats with comfort features.

In route operations, we launched new daytime services between Haneda and London/Paris/Singapore/Bangkok using our additional international flight slots at Haneda. We also started services between Haneda and Ho Chi Minh City using our late-night and early morning slots. At Narita Airport, we increased services from 7 to 14 weekly flights between Narita and New York, and between Narita and Jakarta to capture traffic between the U.S and Asia, which shows promises of growth. Furthermore, we launched services between Nagoya (Chubu) and Bangkok to expand our network in regions outside the Tokyo metropolitan area. As a result, JAL became the Japanese carrier with the largest scale of operations between Japan and Bangkok with 5 round trip services a day.

On the product side, we expanded routes operated by aircraft retrofitted with JAL SKY SUITE cabin interiors, that is, fully-flat Business Class seats with unobstructed aisle access for every seat and ‘New-Spacious Economy’ with approximately 10 cm. more legroom than the previous economy seat. In addition to thirteen Boeing 777-300ER’s dubbed JAL SKY SUITE 777 and nine Boeing 767-300ER’s, dubbed JAL SKY SUITE 767, already introduced on international routes, we rolled out JAL SKY SUITE 787 on new Boeing 787-8 in December 2014, offering 8-abreast seating compared to the normal 9-abreast economy, on the Narita=Frankfurt/New York routes.

As a result, international supply when measured in Available Seat Kilometers (ASK) in the third quarter increased by 3.2% year-on-year and demand when measured in Revenue Passenger Kilometers (RPK) increased by 2.1% year-on-year, resulting in a load factor (L/F) of 75.4% (down 0.8 point year-on-year) and international passenger revenue of 345.9 billion yen (up 4.4% year-on-year).

Domestic Passenger

In domestic passenger operations, we improved JAL Group’s mobility in balancing supply and demand and improved profitability through the merger of JAL Express Co., Ltd and JAL on October 1, 2014. On October 24, Hokkaido Air System Co., Ltd. (HAC) joined JAL Group.

In route operations, we increased flights between Haneda and Itami/Okayama/Kita-Kyushu, etc. and also between Haneda and Yamagata using contest slots, designed for local governments and airlines to jointly improve regional routes. We also increased flights on routes with expected demand growth such as the Itami=Naha route to increase the customers’ convenience.

Regarding products, we rolled out aircraft featuring JAL SKY NEXT cabin interiors from May, mainly on hub routes such as Haneda=Fukuoka/Itami/Sapporo, which are operated by the Boeing 777/767. From October, we progressively expanded JAL SKY NEXT to routes connecting Haneda and regional cities operated by the Boeing 737. Seats covered with genuine leather produce a sense of high quality and slimmed-down Economy Class seats with legroom (around the knees) increase seating comfort, while in-cabin LED lighting orchestrates the change of seasons and flow of time to create a relaxing ambience and a feeling of Japan. Furthermore, JAL was the foremost airline to provide domestic inflight Internet services, called JAL SKY Wi-Fi, to allow customers to enjoy inflight entertainment or access the Internet via personal Wi-Fi enabled smartphones, computers, etc. Through these innovations, we sought to create a luxurious ambience through totally coordinated cabin interiors and cabin service with enhanced quality, which was favorably recognized by many customers. Incidentally, JAL SKY NEXT was awarded Good Design Best 100 for FY2014 (sponsored by Japan Institute of Design Promotion).

As a result, domestic supply when measured in Available Seat Kilometers (ASK) in the third quarter declined by 3.4% year-on-year and demand when measured in Revenue Passenger Kilometers increased by 0.8% year-on-year, resulting in a load factor (L/F) of 66.4% (up 2.8 points year-on-year) and domestic passenger revenue of 373.0 billion yen (down 0.5% year-on-year).

International and Domestic Cargo

In international cargo operations, we actively captured automobile shipments, etc. from Japan spurred by the growth of exports especially to North America, improved revenue management, and efficiently captured transit shipments to maximize revenue. As a result, the volume of international cargo handled during the reporting period in terms of Revenue Cargo Ton Kilometers (RCTK) increased by 13.1% year-on-year, and revenue increased by 9.4% year-on-year to 44.3 billion yen.

In international mail operations, by capturing shipments of individual mail orders, which have shown steady growth, we achieved demand surpassing the result set last fiscal year. As a result, the volume of international mail handled during the reporting period in terms of Mail Ton Kilometers (RMTK) increased by 7.4% year-on-year, and international mail revenue increased by 18.8% year-on-year to 7.9 billion yen.

Domestic cargo operations were affected by a modal shift from surface transportation to air transportation due to a shortage of trucks. However due to the decrease in supply, the volume of domestic cargo handled during the reporting period when measured in Revenue Cargo Ton Kilometers (RCTK) decreased by 3.0% year-on-year, and revenue decreased by 4.2% year-on-year to 18.8 billion yen .

Consolidated revenue for the full fiscal year is expected to increase by 2 billion yen from the previous forecast due to an increase in cargo revenue, etc., while consolidated operating expenses are expected to decline by 7 billion yen owing to falling aviation fuel prices and rigorous cost reduction initiatives continuing into the second half of the fiscal year, and so on. Consolidated operating profit reflecting the aforementioned factors is seen to increase by 9 billion yen from the previous forecast.