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JAL Group announces financial results for first three quarters of fiscal year 2012

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JAL Group announces financial results for first three quarters of fiscal year 2012
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Feb 05, 2013

TOKYO, Japan - The JAL Group (JAL) announced today, the consolidated financial results for the first three quarters of fiscal year 2012 (year ending March 31, 2013).

During this nine-month reporting period, post-quake restoration demand continued to drive the Japanese economy; however, the economic rebound was blunted by a slowdown in the global economy. Recently, signs of a business recovery were seen following the change of administration in Japan, such as the weakening of the yen, and a rise in stock prices. On the other hand, the third quarter encountered risks of possible economic stagnation due to the economic slowdown in Europe, China, etc., deflation in Japan, strained diplomatic relations due to territorial issues, and such, causing the outlook to remain opaque.

Under these economic conditions, international travel demand to Europe, North America and Southeast Asia have been positive and on the domestic front, response to newly established year-end special fares meant to boost demand have been favorable, thus enabling growth in sales. In the face of fuel costs, increase in expenses used in strengthening product and service competitiveness among others, JAL strived to raise profit consciousness through the divisional profitability accounting system, and achieve greater business effectiveness, founded on its strong commitment to ensuring flight safety, with the aim to achieve the targets in the Mid-Term Management Plan.

Consequently, consolidated operating revenue during the reporting period increased year-on-year by 3.6% to 942.0 billion yen, while operating expense increased 4.9% to 783.8 billion yen. Operating income at 158.1 billion yen was 2.2% less than last year, and ordinary income declined 1.2% to 154.2 billion yen. Total net income of 140.6 billion yen for the three quarters represents a 3.7% decline from last year.

(1) JAL Group Consolidated Results for the Period April 1 - December 31, 2012

Unit: Billions of yen
First 3 Quarters of FY2011
(Apr. 1 - Dec. 31, 2011)
First 3 Quarters of FY2012
(Apr. 1 - Dec. 31, 2012)
Difference
vs. prior year
% vs. prior year

Total Operating Revenue
909.1
942.0
+ 32.8
103.6

International Passenger
Domestic Passenger
Int. and Dom. Cargo
Others
288.9
367.2
59.8
193.0
308.3
373.4
57.5
202.6
+ 19.3
+ 6.2
- 2.2
+ 9.5
106.7
101.7
96.3
104.9

Total Operating Expense
747.4
783.8
+ 36.3
104.9

Operating Income
161.6
158.1
- 3.4
97.8

Operating Margin
17.8%
16.8%
- 1.0 points
-

Ordinary Income
156.0
154.2
- 1.7
98.8

Net Income
146.0
140.6
- 5.3
96.3

Figures are rounded down to the nearest tenth of a billion yen while percentage points are rounded up to the nearest tenth.

(2) Air Transportation Segment

International Passenger

In strong efforts to maximize revenue, JAL increased capacity with the opening of new routes between Tokyo (Narita) and Boston on April 22 and San Diego on December 2, 2012, in addition to increasing flight frequency on the Narita=New Delhi route (from five to seven weekly flights) and Narita=Singapore route (from seven to 14 weekly flights) at the end of October. On the other hand, responding to the decline in demand on China routes owing to territorial issues, JAL swiftly adjusted down frequency of flights to minimize impact on revenue. In all, this resulted in international passenger capacity measured in Available Seat Kilometer (ASK) to be 4.1% up from previous year.

Travel demand to Europe, North America and South East Asia has been positive against the backdrop of a strong yen rate. Leveraging the sales network of joint business partner American Airlines, JAL was also able to attract customers expansively from Asia and North America. Furthermore, the numbers of individual-travelers and inbound-Japan tour groups on China routes have shown signs of recovery since November and demand in terms of Revenue Passenger Kilometer (RPK) rose 15.2% versus last year while load factors went up 7.3 percentage points to 76.2%.

Both members of the oneworld member airline, JAL and British Airways started a joint business on October 1, 2012 to provide better links between Japan and Europe and to create more customer benefits in terms of products and services, such as offering codeshare flights between Tokyo (Haneda and Narita) and London (Heathrow), and selling aligned fares. JAL and Malaysia Airlines, which joined the same alliance on February 1, 2013, began a codeshare partnership in July last year between Japan and Asia. This partnership will benefit customers by offering smoother connections between Asia and the Middle East via Malaysia Airlines' primary hub in Kuala Lumpur, and will benefit both carriers as well with business opportunities to tap new demand.

JAL began offering JAL SKY Wi-Fi, an inflight Wi-Fi connection service that supports passengers' own smart phones, computers and other wireless LAN devices, between Narita and New York, Chicago, Los Angeles, and Jakarta. As JAL's original service, it is used by many passengers, and will be progressively expanded to other routes. To increase product and service competitiveness, from January 2013, new seats and new services were introduced under the concept of "service a notch higher in all Classes" on flights between Narita and London. As a result, international passenger revenue grew 6.7% to 308.3 billion yen.

Domestic Passenger

In domestic route operations, JAL increased flights and used larger aircraft mainly on Haneda outbound routes and on Tohoku routes where post-quake restoration demand was strong and where passenger demand resurged after the post-quake decline the year before. The network was also expanded by the resumption of scheduled flights between Fukuoka=Hanamaki and Sapporo=Niigata, while the number of daily flights on the Haneda=Izumo, Sapporo=Sendai, and Fukuoka=Miyazaki routes were adjusted accordingly to changes in seasonal demand. As such, domestic capacity, based on ASK, was 4.6% higher than previous year.

In order to boost demand, a new discount was added to Sakitoku and Super Sakitoku fares, which offers greater savings by allowing ticket sales from 55 days before the day of departure. Sales of Sakitoku and Super Sakitoku fares were extended to the year-end period (December 29~31, 2012) for the first time to enable as many customers as possible to enjoy savings even during this peak travel period for returning to their hometowns or leisure traveling. RPK is 5.0% up from the same period last year and load factor increased 0.2 percentage points to 63.5%.

Enhancing its product and service offerings, JAL introduced the popular JAL First Class service on more flights and from August 2012, also expanded the service on the Haneda=Okinawa route. Class J seats which are highly commended by corporate clients were also offered on increased number of flights to improve convenience and comfort. Thus, revenue from domestic operations in the nine months to December 31, 2012, grew 6.2 billion yen (1.7%) to 373.4 billion yen.

International and Domestic Cargo

International cargo operations experienced sluggish inbound and outbound overall demand, but sales sections responded flexibly and found ways to maximize revenue by exploring new customer-avenues, improving service to existing customers, and acquiring transit cargo. In sales activities, Haneda airport's convenient location was optimized to aggressively attract shipment of perishables and Express cargo, and connection services between international and domestic flights at Haneda were expanded to boost shipments to and from regional Japan.

Domestic cargo operations encountered sluggish demand from the second-half of the fiscal year, but through efforts in strengthening customer relations, revenue was successfully maintained. In December, when cargo demand has a tendency to increase, JAL operated nine chartered cargo flights between Haneda and Okinawa to meet the customers' needs.

The volume of international and domestic cargo transported during the reporting period in revenue-cargo-ton-kilometer (RCTK) terms thus increased year-on-year by 4.8% with revenue of 57.5 billion yen.

(3) JAL Group Consolidated Financial Position

FY2011
Year ended March 31 2012
First 3 Quarters for FY2012
Apr. 1 - Dec. 31, 2012
Difference

Total assets (billion yen)
1,087.6
1,176.8
+ 89.2

Net assets (billion yen)
413.8
547.3
+ 133.5

Equity ratio *1(%)
35.7
44.8
+ 9.1 points

Interest-bearing debt (billion yen)
208.4
175.1
- 33.3

Debt/Equity Ratio *2
0.5
0.3
- 0.2

Figures are rounded down to the nearest tenth of a billion yen while percentage points are rounded up to the nearest tenth.

Note:
1. Shareholders' equity is total net assets excluding minority interests
2. Debt-to-equity ratio is interest-bearing debt divided by shareholders equity

(4) Forecast of JAL Group Consolidated Financial Results

While there are concerns of the impact of the suspended use of the Boeing 787 aircraft since January 2013, business has been robust, especially on European, North American and Southeast Asian routes. Various measures including new products and services, which were steadily promoted, are also expected to uplift revenue. As a result, consolidated revenue for the full fiscal year is expected to increase by 13 billion yen compared to the previously announced forecast.

Although the weakened yen is expected to push fuel costs, etc. upward, the effects of hedging and persistent cost reduction efforts have been effective, and consolidated operating expenses are expected to decline by 8 billion yen from the previously announced forecast.

Consolidated operating income for the full fiscal year reflecting the above is seen to increase by 21 billion yen compared to the previously announced forecast. Therefore, the forecast for the fiscal year ending on March 31, 2013 has been revised as shown in the table below.

Unit: Billions of yen
Operating Revenue
Operating Income
Ordinary Income
Net Income

New forecast for the full fiscal year ending March 31, 2013
1,228
186
177
163

Previous forecast for the full fiscal year ending March 31, 2013
(Announced November 2, 2012)
1,215
165
155
140

Note: The forecast above represents estimates of future results based on the information available at the time of release and the company's reasonable judgment on this information. They are inherently subject to risks which may result in a divergence in the actual result from the forecasts and estimates contained herein.

(5) Dividend Policy

Providing returns to its shareholders is one of the key management goals of the JAL Group. Dividend payments were expected to be equivalent to approximately 15% of consolidated net income for the fiscal year ending March 31, 2013. However, since receiving requests from many shareholders for a more substantial shareholders' return after the relisting, as well as an indication that the management target set in the Mid-Term Management Plan spanning fiscal years 2012 to 2016 for an equity ratio of 50% and above may be achieved in the next fiscal year, the dividend policy from hence will be revised to 20% of the consolidated net income for the fiscal year. As such, the expected dividend payment per share for the year ending March 31, 2013, is 180 yen.




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