CAPA: JAL sees signs of recovery

Japan Airlines’ (JAL) long-term malaise could be ending, with Executive Officer, Yoshimasa Kanayama, proclaiming the airline finally sees “clear signs of a recovery” and better than expected progress in its turnaround efforts.The comments come as JAL’s first-quarter loss narrowed by two-thirds, due to increases in revenue on international routes and efforts to cut staffing costs.

Strong passenger demand to China and Southeast Asia, as well as higher fuel surcharges and the suspension of unprofitable routes, supported the bottom line result.

In Feb-07, JAL announced a restructuring plan focused on expanding its short-haul network, using smaller aircraft with higher frequencies, as well as further job cuts, an overhaul of its pension system and sale of non-core assets. The revised network strategy appears to be paying off, particularly as governments in North Asia, including Japan, take a more proactive approach to aviation liberalisation. Japan and Korea last week signed an ‘open skies’ agreement.

But JAL still faces several challenges, including a very strong domestic competitor in All Nippon Airways (ANA). ANA last week reported an operating profit of JPY13.2 billion (compared to JAL’s operating loss of JPY8.6 billion), although ANA’s result fell by a third due to recent weakness in the Japanese domestic market and the impact of high fuel prices. Nonetheless, ANA stated it would “persevere” with efforts to spur demand for travel within Japan, and expects passenger numbers to return to former levels as the year progresses and the carrier retained its full year earnings forecast.

JAL’s advantage over ANA is its much larger international network, carrying some three times more international passengers, while domestic market sizes are similar.

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JAL has also left its profit targets, announced in Feb-07, unchanged, despite the big increase in fuel costs, suggesting stronger underlying business.
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