Cover Story
No complacency: Inamori
June 1st 2012
Call it an exhibition of the Japanese culture of resilience. But a little more than one year after the earthquake and tsunami in northeast Japan brought the country and its airline industry to their knees, major carriers Japan Airlines (JAL) and All Nippon Airways (ANA) have made remarkable recoveries to post healthy profits for the 2011 financial year. Read More »
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But it’s JAL, which in addition to overcoming last year’s tragedy only exited bankruptcy protection 15 months ago, that catches the eye.
Against this backdrop and the added problems of a soaring oil price and economic volatility, JAL, after restructuring, returned record profits; a net profit of 187 billion yen (US$2.33 billion) and an all-time high operating profit of 205 billion yen for the financial year to March 31.
JAL shed 49 unprofitable routes, cut 16,000 staff and withdrew its entire B747 fleet while being bailed out by the quasi-governmental organization, Enterprise Turnaround Initiative Corporation (ETIC). The notion that “bigger is better” no longer applies to the once-beleaguered carrier.
The FY2011 net profit figure exceeded its original forecast of 160 billion yen by 11% despite an 11.8% fall in operating revenues from FY2010 to 1.2 trillion yen. Operating expenses fell proportionately faster by 15% to around one trillion yen, thereby producing an operating profit of 204.9 billion yen.
The record figures were mainly due, said the airline, to JAL responding swiftly to changes in the operating environment, including better utilization of aircraft.
| The analyst’s view Yoshihisa Akai CEO and head of research at Japan Aviation Management “JAL’s remarkable recovery is thanks to the reduction of fuel-inefficient aircraft in its fleet, personnel expenditure, cuts in pension payments and drastic network pruning. It can also be said that the strong yen helped to bring about this result in spite of high fuel cost and the influence of the March 11, 2011 disasters which continued well into the year. “But most of these factors are temporary, so the company needs to be careful of complacency and should resist the temptation to return to an overly ambitious expansion plan. Steady growth is the way in the near future. “Tough times lie ahead. Japan’s domestic market will undergo tremendous changes this year with three new home-produced LCCs entering the market. These will take traffic away from JAL and ANA. “Just how much remains to be seen, but they will have a negative impact on the two big legacy carriers. For both JAL and ANA, not only in the domestic operations but also in the international field, alliances are becoming more important to attract premium passengers against the attack of the LCCs.” |
International revenue passenger kilometers (RPKs) declined 20.3% over 2010 and exceeded the 16.8% contraction in available seat kilometers (ASKs). This led to a 3.1% drop in load factor to 70.4%.
The 13.5% cut in domestic capacity outpaced the 12.3% drop in domestic demand, which resulted in a 0.8% increase in load factor to 62.7%.
“As the industry is always exposed to risks, we have to come up with a cautious plan. I keep telling [the staff] not to feel complacent about this result,” cautioned JAL honorary chairman, Kazuo Inamori (pictured).
Indeed, JAL has predicted 30% and 27% fall in net profit and operating profit to 130 and 150 billion yen, respectively in 2012.
As the oneworld alliance member contemplates a September initial public offering (IPO) worth US$13 billion, according to local media reports, its latest financial results are a far cry from the 2.32 trillion yen worth of debt the company had when it declared bankruptcy a little over two years ago.
“All we can do is to make this company attractive for investors and to continue showing good performance while focusing on safety in our operations,” said JAL president, Yoshiharu Ueki.
The debt-to-equity ratio slumped by 1.9 points, backed by a 275 billion yen decline in interest-bearing debt versus a year ago, a testament to JAL’s renewed focus on financial performance.
A leaner and meaner JAL will be entering the fast developing low-cost market in Japan later this year through Jetstar Japan, a joint venture with Qantas Airways.
Jetstar Japan will have bases at Tokyo Narita and Osaka Kansai airports. It plans to expand regionally in 2013.
