Air Transport World

Building for the 'new era;' Japan Airlines is suffering from Gulf War, recession and economic problems but expansion for post-1995 is moving ahead. (Company Profile)

Japan Airlines is flying in some rough air, with troubling uncertainties, the biggest of which is where the air mass itself, the Japanese economy, is going: Up, down or many combinations, including sideways.

JAL is in much the same situation as its chief rival, All Nippon Airways (ATW, 5/92), only worse. Things are getting a bit shaky, especially with the economy. But both airlines know they must prepare for the big changes that lie ahead when the new Japanese airport capacity becomes available in the mid-1990s. Despite the short-term setbacks, JAL plans to be a formidable contender in the int'l airline arena, whatever the challenges beyond 1995.

The Gulf War and the economic recession in the U.S. and the U.K. hurt Japan Airlines much more than it did ANA. As JAL's managing director-int'l marketing, Mitsuo Ando said in a speech earlier this year: "Operation Desert Storm was followed by Operation Deserting Passenger." JAL relies mostly on its int'l service --67.7% of revenue--where most of the economic down-turns have centered over the past two years, rather than in the domestic market where ANA dominates. In terms of revenue passenger-kilometers, it gets 76.1% of its traffic from int'l operations. Most of its traffic declines, diminishing yields and increased operating expenses have occurred on its int'l routes.

JAL's int'l traffic is only starting to recover from the setbacks it suffered in FY90, which included drops of 39.3% and 33.1% in February and March, 1991 RPKs. Int'l RPKs actually showed gains of 4.3% for FY91, the year just ended on March 31. Int'l passenger boardings rose 5.4% during the period.

Late last year, JAL Chairman Susumu Yamaji was estimating that the Gulf War and slumping economies had cost his airline about $300 million in profits. Although financial returns were not yet final at this writing, JAL officials were estimating that at best, the airline would break even for its FY91, which ended last March 31. That is a severe decline from the $253.8 million operating profit reported for FY90, and far down from the more than $600 million operating profits for each of the preceding two years.

Increased fuel costs on int'l sectors helped drive operating expenses up 13% in FY90 and 16% in FY89. Things improved significantly in the financial year just concluded as expenses actually declined 8.3%. Unfortunately, revenues declined 10.7% as yields were seriously eroded by slumping business traffic. For example, for the 9-month April-December, 1991 period, JAL's firstclass passenger traffic declined 21%; business class was down 8%, while economy class actually increased 3%. The result was a 4.6% decline in int'l passenger revenue while int'l passenger traffic actually increased about 5.4% during the year just ended last March 31.

JAL's cargo program also was hurt by the war and general bad economic times. The airline is the third-largest air-cargo carrier in the world and about 17% of its revenue comes from cargo. Its int'l cargo traffic and revenue fell off about 2% and 6.5% respectively in FY91. …

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