Japan Airlines returns to profit, but sees hard times ahead

16 May, 2008: Japan Airlines Corporation, the largest carrier in Asia, has made profits in the January-March quarter of 2008 after two straight annual losses. However, the airline has forecast a 23% fall in earnings in 2008 thanks to high costs of fuel.

It registered a net profit of 16.9 billion yen ($163 million) in 2008 through March, compared with a net loss of 16.27 billion yen the previous year.

Japan Airlines (JAL), based in Shinagawa, Tokyo, is Asia’s largest carrier by sales as well as Asia’s most indebted carrier.

It operates scheduled and non-scheduled international and domestic services from its main bases of Narita International Airport and Tokyo International Airport, Tokyo.

It has been striving to get out of the red by resorting to an array of measures, including job cuts, more fuel-efficient aircraft and a focus on business travellers.

The profits in the first quarter of 2008 were achieved through measures such as cutting thousands of jobs, cancelling unprofitable routes and stepping up lucrative business class services, according to a top executive of Japan Airlines.

The carrier’s bottomline profit was the highest since it earned a net profit of 30 billion yen in the first quarter of March 2005.

The operating profit jumped from 22.9 billion yen to 90.0 billion yen – the highest since Japan Airlines integrated domestic carrier Japan Air Systems in 2002.

However, Japan Airlines’ revenue declined by 3.1% to 2.23 trillion yen because the airline had sold most of its stake in Jalux Incorporated, which operates retail outlets at airports, the JAL executive told a news conference in Tokyo.

A statement from Japan Airlines said: “Even though the JAL Group has made great strides towards achieving its overriding goal of building a robust management framework, a business structure which can produce profits even in the face of factors such as rising fuel costs or slowing demand, the business environment continues to be severe.”

Japan Airlines, according to the JAL executive, might have been hit by other factors such as possible penalties by European Union authorities over alleged price-fixing of air cargo. JAL has already agreed to plead guilty and pay a fine of $110 million to the United States Justice Department over price-fixing charges.

JAL is also expecting to earn 42 billion yen in additional profits from the sale of about half of its shares in credit and mileage card unit JAL Card to Mitsubishi UFJ Financial Group.

In 2007, JAL’s passenger revenue from international routes had risen by 4%, mainly on account of cost-cutting measures and solid ticket sales for flights to China, South Korea and South-east Asia. However, domestic passenger demand remained stagnant owing to stiff competition, the company executive said.

He said the carrier had managed to cut its operating expenses by 139 billion yen, which helped it cope with high costs of jet fuel.

The airline reduced its workforce by 2,207 people over the year as a part of the steps to combat soaring operating costs.