JAPAN AIRLINES

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  • October 31, 2016

JAL Group Announces Consolidated Financial Results for the First Six Months of the Fiscal Year 2016

JAL Group (JAL) today announced the consolidated financial results for the first six months of the fiscal year of 2016 - the period from April 1 to September 30, 2016. For the details, please refer to attached [Consolidated Financial Results for the Six Months Ended September 30, 2016].

During the first six months of the fiscal year ending March 31, 2017 (April 1, 2016 to September 30, 2016, hereinafter referred to as “the second quarter”), the Japanese economy showed weakness while consumer confidence stabilized. Due to effects of the earthquakes that struck Kumamoto Prefecture in the Kyushu region in April (the “2016 Kumamoto Earthquakes”), the demand in Kyushu market declined. In overseas economies, weakness was observed in new emerging markets in Asia and resource-rich countries such as China’s economic slowdown. Crude oil prices, which affect our fuel purchasing costs, international passenger revenue and international cargo revenue, have been lower than the year before, and the JPY/USD foreign exchange rate showed the Japanese yen getting stronger. Under these economic conditions, we worked to increase profit consciousness of every staff by aligning our actions with the JAL Philosophy and the amoeba management system, realizing greater management efficiencies, and providing the finest service to our customers anchored in our firm commitment to flight safety in order to reach the targets set out in Rolling Plan 2016 for the JAL Group Medium Term Management Plan announced on February 18, 2016.

As a result of the above, consolidated operating revenue decreased by 5.2% year-on-year to 651.9 billion yen and operating expense decreased by 1.5% to 559.4 billion yen, while operating income decreased by 23.0% year on year to 92.4 billion yen and ordinary income decreased by 26.8% to 89.8 billion yen. Net income attributable to owners of the parent for the second quarter was 71.4 billion yen, down 30.9% year on year.

(1) JAL Group Consolidated Results for the Period April 1 - September 30, 2016

Unit: Billions of yen Fiscal Year 2015
(Apr. 1 – Sep. 30, 2015)

 
Fiscal Year 2016
(Apr. 1 – Sep. 30, 2016)

 
Difference
vs. Prior Year

 
% vs. Prior Year
Operating Revenues 687.9 651.9 - 36.0 94.8

International Passenger

Domestic Passenger

Int. and Dom. Cargo

Others

235.6

256.8

40.7

154.7

213.1

253.3

31.5

153.8

- 22.5

- 3.4

- 9.1

- 0.8

 90.4

98.7

77.5

99.4

Operating Expenses 567.9 559.4 - 8.4 98.5
Operating Income 119.9 92.4 - 27.5 77.0
Operating Margin 17.4% 14.2% - 3.3 points -
Ordinary Income 122.6 89.8 - 32.8 73.2
Net Income attributable to owners of the parent 103.3 71.4 - 31.9 69.1

Figures are rounded down to the nearest tenth of a billion yen while percentages are rounded off to the first decimal place.

(2) Air Transportation Segment

International Passenger

In route operations, the Narita and Dallas/Fort Worth service which opened the previous fiscal year has been in great demand, and therefore, we increased services from four weekly services to daily services from March 20, 2016. Flight frequency was also increased on the Narita=Moscow route by one flight to four weekly flights from April to June, and further, to five weekly flights from July to October to cater to increasing passenger demand.

As for alliances, the proposed inclusion of Iberia in the trilateral joint business with British Airways and Finnair on routes between Japan and Europe received antitrust immunity approval. As part of the joint business, Iberia and JAL have commenced codeshare cooperation on Iberia-operated flights between Narita and Madrid from October 18, following the sales of new joint fares by the four airlines began from September 21, 2016. Furthermore, JAL and Alaska Airlines forged a codeshare partnership effective June 29, 2016.

On the marketing front, to increase customer preference for JAL and enhance affinity for Japan in China, taking into account the large influx of Chinese tourists to Japan, we opened a special website and have sent contents regularly over China’s largest SNS “WeChat.” In addition, we operated a JAL Doraemon Jet painted with special Doraemon livery.

On the product side, we continue to expand routes operated with JAL SKY SUITE configured aircraft, offering full-flat seats in Business Class with unobstructed aisle access from every seat and the “New Spacious Economy” in Economy Class, which is more spacious than the standard seating arrangement. We are also progressively retrofitting our 777-200ER aircraft with JAL SKY SUITE cabin interiors. The JAL SKY SUITE 777-200ER is currently in service on the Haneda=Bangkok and Haneda=Singapore routes. As of the end of September 2016, JAL SKY SUITE operated routes including the 777-300ER, 787-8, 787-9 and 767-300ER have increased to 30 flights on 25 routes.

As a result of the above, capacity on international routes measured in Available Seat Kilometers (ASK) increased by 0.8% year-on-year, demand measured in Revenue Passenger Kilometers (RPK) increased by 0.1% year-on-year, the Load Factor (L/F) was 80.0% year-on-year (down 0.5 percentage points), and international passenger revenue was 213.1 billion yen, down 9.6% from the year before due to a decrease in fuel surcharge revenue and appreciation of the yen.

Domestic Passenger

In route operations, in response to falling passenger demand caused by the 2016 Kumamoto Earthquakes, we speedily downsized aircraft principally on Kyushu routes to/from Haneda to improve profitability, while operating many unscheduled flights mainly between Fukuoka and Kagoshima to supplement disrupted surface transport services in Kyushu.

On routes to/from Itami, we introduced the new Embraer 190, the first regional jet configured with Class J, and launched services with this new jet on the Itami=Kagoshima route from May 2016 and further, on the Itami=Sendai route from July to offer greater convenience and comfort when flying on Itami routes.

On the marketing front, to support restoration from the Kumamoto Earthquakes, we set up a special fare “Oen (Support) Sakitoku” offering greater discounts than regular discount fares applicable to routes to/from Kyushu. We cooperated in relief efforts to the greatest extent possible, such as meeting passenger demand to Kyushu to visit hometowns or volunteer in quake stricken areas, and providing free transportation for volunteer groups and relief supplies. In addition, to lure international travelers to Kyushu, we launched a new domestic fare called “oneworld YOKOSO/Visit KYUSHU Fare” to create opportunities for international visitors to visit Kyushu starting May 2016. We also participated in the “Kyushu Fukko (Restoration) Discount” Project from July 2016 in partnership with General Incorporated Association Kyushu Tourism Promotion Organization, and started selling travel products with JAL Dynamic Package to revive demand for tourism in the Kyushu region, using the Kyushu Tourism Oen (Support) Grant subsidized by the Japanese government.

In airport services, in June 2016 we renovated Sakura Lounge at New Chitose Airport in its entirety and created Diamond Premier Lounge, the second domestic airport offering this prestigious lounge, improved our food and drink service menu, reviewed service times, and such to offer enhanced quality in our airport lounge service.

As for inflight service, to enable more customers to try our inflight Wi-Fi service introduced in July 2014, we conducted a “15 minute for free campaign” on all flights operated by Wi-Fi available aircraft. We also increased the number of programs available in our free video program to provide more pleasant and enjoyable flights.

As a result of the above, capacity on domestic routes measured in Available Seat Kilometers (ASK) decreased by 2.1% year-on-year, demand measured in Revenue Passenger Kilometers (RPK) decreased by 0.4% year-on-year, the Load Factor (L/F) was 68.0% year-on-year (up 1.1 percentage points), and domestic passenger revenue came to 253.3 billion yen, down 1.3% from the year before.

International and Domestic Cargo

In international cargo operations, we worked to steadily secure demand by efficiently capturing transit cargo to a third country in order to maximize revenues. As a result, cargo volume during the reporting period when measured in Revenue Cargo Ton Kilometers (RCTK) increased by 1.1% year-on-year. However, revenue came to 20.3 billion yen, down 29.7% from the year-earlier-period, due to a decline in fuel surcharge revenue caused by lower fuel prices, effects of the strong yen on foreign currency denominated cargo revenue, and netting international cargo sales commission from revenue due to a change in adjusting method.

In domestic cargo operations, though the parcel transport business remained strong, cargo volume measured in Revenue Cargo Ton Kilometers (RCTK) declined 3.5% year-on-year as a result of a demand change of certain shipments to the ground transportation, a decrease in perishable shipments caused by adverse weather conditions, and such. As a result, domestic cargo revenue slipped 4.9% year-on-year to 11.1 billion yen.

(3) JAL Group Consolidated Financial Position

  FY2015
As of March 31, 2016
The Second Quarter of FY2016
As of September 30, 2016
Difference
Total Assets (billion yen) 1,578.9 1,581.0 + 2.1
Net Assets (billion yen) 870.5 912.8 + 42.2
Equity Ratio *1(%) 53.4 56.0 + 2.6 points
Interest-bearing Debt (billion yen) 92.6 74.0 - 18.6
Debt/Equity Ratio *2 0.1 0.1 - 0.0

Figures are rounded down to the nearest tenth of a billion yen while percentages are rounded off to the first decimal place.

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) Consolidated Financial Forecast for the Fiscal Year Ending March 31, 2017

Unit: Billions of yen Operating   Revenues Operating Income Ordinary  Income Net Income attributable to owners of the parent
Previous Forecast (A)     (Announced on April 28, 2016) 1,343.0 201.0 193.0 192.0
New forecast (B) 1,280.0 170.0 163.0 161.0
Change (B-A) - 63.0 -31.0 -30.0 -31.0

 

Reasons for Revisions of Financial Forecast for Fiscal Year Ending March 31, 2016

We have revised market preconditions to reflect the recent market as follows:

 

Exchange Rate

(JPY/USD)

Singapore Kerosene

(USD/BBL)

Dubai Crude Oil

(USD/BBL)

Previous Forecast 123.0 50.0 36.0
New Forecast

106.4               

 (2nd half: 106.0)

54.5              

(2nd half: 56.0)

42.9              

(2nd half:44.0)

 

The full-year consolidated revenue is expected to decrease by 63.0 billion yen over our previous forecast, primarily due to weaker demand in international passenger operations and less revenue per passenger both in international and domestic passenger operations than expected. In addition, we have revised exchange rate and fuel price estimates on which we base our plan. The full-year consolidated expense is expected to decrease by 32.0 billion yen compared to the previous estimate due to continuous cost controlling initiatives and the revision of estimates on which we base our plan. As a result, full-year consolidated operating income is seen to decrease by 31.0 billion yen from our previous forecast.

As we project a decrease of 30.0 billion yen in full-year consolidated ordinary income and a decrease of 31.0 billion yen in full-year net income attributable to owners of the parent, we have revised our earnings forecast for the fiscal year ending March 31, 2017 as the above chart.

(5) Share Repurchase

JAL decided at the Board of Directors meeting held on October 31, 2016 to purchase its own shares in accordance with provisions in Article 156 of the Companies Act, applicable by replacing the phrase pursuant to provisions in Article 165 Clause 3 of the Companies Act.

1. Reason for the share repurchase

To increase capital efficiency and improve returns to shareholders

2. Content of acquisition

(1) Type of shares acquired: Common shares of JAL

(2) Total number of shares acquired: 15 million shares (maximum)

Percentage against total number of issued shares (excluding own shares): 4.1%

(3) Total price of shares acquired: 30 billion yen (maximum)

(4) Period of acquisition: November 1, 2016 ~ March 31, 2017

(5) Others: All acquired shares herein are planned to be retired based on the resolution at the Board of Directors  meeting in accordance with provisions in Article 178 of the Companies Act.

ENDS

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