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JAL Group Announces Consolidated Financial Results for Second Quarter of Fiscal Year 2020

The JAL Group today announced the consolidated financial results for the second quarter of FY2020. Beginning this fiscal year, the Company will apply IFRS (International Financial Reporting Standards) to the consolidated financial results. In order to make a comparative analysis in this release, IFRS will be applied to the figures from FY2019.

1. JAL Group Consolidated Results for the Period April 1, 2020 - September 30, 2020
Due to the spread of COVID-19, the business environment has been challenging in FY2020/2Q. In response to the sharp decrease in travel demand on both international and domestic markets, the Company is striving to reduce variable and fixed cost to counteract the significant decrease in revenue. However, Operating Revenue decreased to 194.7 billion yen, down 74% year-over-year, EBIT recorded a loss of 223.9 billion yen, and Profit/Loss figures recorded a loss of 161.2 billion yen during the first Half of FY2020.

As strict travel and quarantine restrictions were imposed on a global scale, international passenger demand decreased by 97.7% and international passenger revenue recorded 9.1 billion yen, down 96.6% year-on-year. Domestic passenger demand was on the recovery trend in June and July, after the lifting of the state of emergency, but demand declined once again in August due to the increased number of COVID-19 infections. Demand has been a on recovery trend again from September, however, the number of passengers is down 76.1% and passenger revenue recorded 69.6 billion yen, down 75.6% year-on-year. For Cargo and Mail, the supply-demand situation continues to be tight due to large capacity reduction worldwide. The carrier operated 7,228 cargo flights using passenger aircraft in the 1st Half of Fiscal Year 2020. As a result, cargo revenue increased 18.4% year-on-year, recording 53.4 billion yen.

【Consolidated financial results for FY2020/2Q】
1) Consolildated Financial Results.png

 

2. Initiatives to improve our performance

Recovery in Travel Demand - Forecast
 - As for international business, even though immigration restrictions are still in place in many countries, gradual resumption of traffic is expected to begin soon. The JAL Group will consider the restart of services based on passenger demand, while assessing the immigration and quarantine systems in each country.

- Restraints in travel on domestic routes has eased since the end of September, and from October, there has been a steady recovery in tourism demand, thanks to the addition of the Tokyo “Go To Travel” Campaign. The carrier will continue to carefully monitor passenger demand and develop appropriate demand stimulus measures in a timely manner.

- For Cargo and Mail, JAL continues to operate cargo flights using passenger aircraft on international routes to support the logistics network and optimize the use of aircraft.

Cost / CAPEX Reduction
- Revenue and Capacity-linked expenses have been reduced by 217.8 billion yen year-on-year, which equates to approximately 40% of the reduced operating revenue during the second quarter of FY2020 (554.1 billion yen). The Company continues to aim for approximately 40% of reduced revenue.

- Fixed Costs (i.e. IT/Personnel/Advertisement expenses) have been reduced by 34.1 billion yen year-on-year  with the original targeted at 90 billion yen fixed cost reduction for the year. To date, the company achieved a reduction of 64 billion yen and has since raised the target by another 10 billion yen, resulting in a fixed cost target of 100 billion yen in total.

- For investments, a total reduction of 80 billion yen is being targeted by reducing an additional 10 billion yen, aiming to reduce 90 billion yen in total.

The JAL Group will continue to carry out drastic cost and capex reduction initiatives in a timely manner and make company-wide efforts to improve performance.

【Cost / CAPEX Reduction Measures】
2) Cost Capex Reduction Measures.png

 

Finance and Funding Status
- Cash balance stands at 346.6 billion yen as of the end of 2nd quarter, securing sufficient liquidity.

- The Company plans to set up an additional 100 billion yen credit facility next month, resulting in the total amount of unused credit facility of 300 billion yen. Repayment of interesting-bearing debts within one year is limited to 50.9 billion yen.

- Balance of Interest-bearing Debts increased in 1Q, but the D/E ratio inclusive of lease obligations still remains at the level of 0.6x and Shareholders’ Equity Ratio at 43.6%.

- Operating cash flow was minus 19.7 billion yen in the 2nd quarter against 130.2 billion yen in the 1st quarter, because the refunds of flight cancellation have settled down and achieved a significant reduction of the negative range.

As such, the Company will continue to ensure sufficient liquidity by financing in a timely manner.

【Summary of Consolidated Statement of Financial Position and Cash Flow】
3) Summary of Consolidated Summary.png

 

【Initiatives to Secure Liquidity at Hand】
4) Cash Balance & Credit Facility.png

 

3. JAL Group’s Consolidated Financial Forecast for FY2020

Consolidated Financial Forecast for FY2020 (Ending March 31, 2021)
It is extremely difficult to provide a specific forecast on the recovery of international and domestic passenger demand at the present time, because these figures may significantly fluctuate depending on circumstances surrounding COVID-19 and on situations concerning border closure and travel restrictions by governments. However, based on the demand forecast for this fiscal year, the Company has come up with various scenarios based on IATA's demand forecast, as well as the current passenger demand, the spread of COVID-19, the relaxing of travel bans and the unique features of the Japanese airline market.

Based on these demand recovery scenarios, the Company has produced a range of revenue assumptions reflecting efforts for further cost reduction, and decided to present a range of earnings forecasts for the current fiscal year.

Consolidated forecast for FY2020 is as follows.

Forecast Chart Rev.png
(Note)Market Assumption for 2nd Half
- Singapore Kerosene :50USD/bbl, Dubai Crude Oil:44USD/bbl, FX Rate:JPY 110/USD

As a part of the restructuring of international passenger business, the carrier plans to retire a number of the Boeing 777 fleet. The impairment loss and other costs related to the retirements are included in the EBIT forecast. In spite of the uncertainty, the carrier will make every effort to minimize losses through flexible capacity adjustment and thorough cost reduction measures.

【Consolidated Financial Forecast for FY2020 (Demand/Revenue Forecast)】6) Consolidated Demand & Revenue Forecast RVSD.png
1) FY2019 numbers are based on the revised forecast that was disclosed at FY19Q3 Financial Results announced on January 31, 2020

 

4. Our vision and initiatives in the New Normal
The global pandemic, known as COVID-19, is expected to cause significant changes to our society and the airline industry. In terms of passenger demand, the recovery of international demand is expected to take considerable time. In particular, the industry understands that business related demand will decrease due to the prevalence of web conferencing and working remotely. On the other hand, the carrier is taking into account the solid recovery and further growth of demands from leisure passengers. In our society, new values and workstyle would emerge during the New Normal. Also, regional and environmental social issues will be focused on throughout the industry. At the same time, it is inevitable that the Company`s financial position will deteriorate by the increase of Debt.

Based on the current business environment, the JAL Group has set the future management direction under four pillars, known as "Rebuilding Financial Structure", “Enhancing Safety and Security", "Restructuring the Business Structure", and "Accelerated initiatives for Social Issues"

In the post-COVID-19 era, the JAL Group`s social mission will be increasingly important, playing a key role in the social infrastructure. As tourism, regional vitalization, and carbon dioxide reduction become increasingly important, the carrier will address the following management issues to further strengthen our capabilities to fulfill social missions.

- Rebuilding Financial Structure
Maintaining our current employment, the Company will rebuild a firm financial structure and strengthen our risk tolerance through implementing thorough cost and investment reduction and improve profitability.

- Enhancing Safety and Security
The JAL Group will strive to improve and promote contactless services with a high level of cleanliness.

- Restructuring the Business Structure
To prepare for the possibility of the temporary decline in passenger demand post COVID-19 and the significant changes in business and tourism demand, the Company will thoroughly review the business structure, including the scale of our international passenger business in respond to demand trend and the business portfolio of FSC and LCC. Also, the carrier will develop new businesses that are less dependent on passenger demand as a new revenue stream, and will strengthen risk tolerance by strategically balancing our focus on various businesses.

- Accelerated Initiatives for Social Issues
The JAL Group will tackle environmental issues and aim to reduce carbon emissions to zero by 2050.

Specific measures based on the above policy are as follows

【Strategic Direction and Restructuring the Business Structure Toward New Normal】
7) Strategic Direction.png

8) Restructured Business Structure.png

 

The JAL Group will present specific initiatives during the next Medium Term Management Plan. In order to survive the COVID-19 pandemic, the carrier will promptly proceed with restructuring the business structure and the reconstruction of an even stronger financial position to achieve sustainable growth.

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