Japan Airlines Posts Biggest Loss of $1 Billion in Six Years as Travel Declines

Japan Airlines Posts Biggest Loss of $1 Billion in Six Years as Travel Declines by Japan Airlines Corp.
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In a official news, Japan Airlines Corp., Asia’s largest airline by sales, posted the biggest quarterly loss in at least six years as companies slashed business travel.
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Japan Air had a loss of 99 billion yen ($1 billion) in the three months ended June 30, compared with a loss of 3.4 billion yen in the same period last business year, the Tokyo-based company said in a statement today. Sales dropped 32 percent to 335 billion yen.
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The airline will eliminate flights to Paris and Seoul from Nagoya and reduce service to India and China from Tokyo after sales from international passengers plummeted 46 percent. President Haruka Nishimatsu has declared “nothing off limits” for cost-cutting after the carrier followed All Nippon Airways Co. and Singapore Airlines Ltd. in reporting losses.

“Everything is going wrong for Japan Air right now,” said Yoshihiro Okumura, who helps oversee the equivalent of $365 million at Chiba-gin Asset Management Co. “Costs are excessive, but at the same time, it needs to invest in new aircraft to renew its fleet.”

The airline industry globally may lose $9 billion this year as a swine flu outbreak compounds the effects of the global recession, according to the International Air Transport Association.

Japan Air fell 1.2 percent to 166 yen and traded at 167 yen as of 12:51 p.m. in Tokyo.
Full-Year Forecast

The company reiterated its full-year forecast of a loss of 63 billion yen. It predicts a one-time savings of 88 billion yen this year by cutting pensions. The reduction has yet to be approved by the carrier’s retirees.

More than 3,000 retirees out of approximately 9,000 intend to vote against the move, according to an unofficial tally on a Web site run by The Committee to Consider the Revision of JAL’s Pension Scheme. That’s enough to block the cuts as the Tokyo- based carrier needs a two-thirds majority to push them through.

Japan Air is losing international passengers as the economy shrinks. The airline has cut the frequency of eight overseas routes, including Tokyo flights to and from Taipei, Seoul and New Delhi and is ending its Osaka-London service due to shrinking demand.

“Japan Air needs more cost cuts,” said Mitsushige Akino, who oversees $615 million in assets in Tokyo at Ichiyoshi Investment Management Co. “It should get rid of money-losing routes.”
All Nippon

All Nippon, Japan’s second-largest carrier, forecasts a return to a profit this fiscal year helped by 73 billion yen in cost reductions.

ANA, as All Nippon is also known, last month said it will post a profit of 3 billion yen for the year ending March 31, compared with a loss of 4.26 billion yen last year.

Japan Air reached an agreement with its largest labor union to cut workers’ pay by 5 percent from October last year.

The carrier forecast in May its fuel costs will fall by 111 billion yen, or 27 percent, in the year ending March 31 from 413 billion yen last business year.

The price of jet kerosene has tumbled since reaching a record $181.85 a barrel in July 2008. It traded at $82.05 a barrel in Singapore yesterday.

The Japan Airlines Corporation on Friday announced a net loss of $1 billion in the last quarter and a set of hefty cuts to its international flight schedules, the latest in a flurry of similar measures by airlines around the globe as the industry reels from sharply reduced demand for air travel.

Japan Airlines, one of Asia’s largest, said it was making “drastic adjustments” to its network and fleet size in a bid to adjust to slowing demand, further reducing flights on eight international routes and discontinuing two others from Oct. 25.

It will also deploy much smaller aircraft on 14 international routes as it struggles to shore up profitability in the wake of the toughest conditions the airline industry has faced in decades.

The company posted a net loss of 99 billion yen for the quarter from April through June, compared with a loss of 3.4 billion yen in the same period last year.

Revenue collapsed by 32 percent, to 334.8 billion yen.

Business conditions, it said in a statement, were “starkly harsher” than a year ago, in part because of the flu outbreak in the spring, which hit leisure travel hard.

The results echo those at other airlines: Singapore Airlines, British Airways and Air France-KLM were also among those last week to report losses for the same period.

Hit by soaring oil prices last year, and a collapse in passenger and cargo demand as the global financial system convulsed late last year, the entire industry has been forced to announce major cuts to services and investment plans. Many have idled planes, delayed or scrapped orders for new aircraft, and cut jobs.

The latest data from the International Air Transport Association, released last week, showed global passenger numbers in June down 7.2 percent from a year earlier, while freight traffic — an important source of revenue for many carriers — was 16.5 percent below June 2008.

Although those figures also hinted at stabilization, they still made grim reading. Most carriers remain gloomy about the prospects for recovery, and analysts believe many may need to announce yet more cost cuts and strategic rethinks unless the situation improves.

Cathay Pacific, the Hong Kong-based carrier, for example, this week said it might have to shift its business model away from the current heavy reliance on business and first-class travel. This segment of the market has been hit especially hard by the economic downturn as companies, in search of savings, shifted corporate travel away from premium to economy class.

The flight cuts announced by Japan Airlines on Friday include plans to halve the number of weekly flights between Narita airport of Tokyo and Guangzhou, in southern China, to seven. Flights between Haneda airport of Tokyo and Hong Kong will be cut to 3 a week, from seven; and flights from Narita to Delhi will also be cut to three a week, from seven.

The airline will also reduce flights from Osaka to Shanghai and Seoul.

Services between Nagoya and Paris, and Nagoya and Seoul will be suspended entirely. Japan Airlines currently has seven weekly flights on those two routes.