JAL cuts forecast as profit slumps
The carrier is hit by rising fuel costs and a slump in business
Japan Airlines Corp., Asia's largest carrier by sales, cut its full-year forecast for operating profit as it paid more for fuel.
The company lowered its forecast by 24 percent to $110 million after operating profit slumped 48 percent in the first half. The company kept its full-year net income forecast unchanged.
A surge in jet fuel costs exacerbated a business slump at Japan Airlines, which has lost higher-paying business travelers to rival All Nippon Airways Co. because of safety mishaps. All Nippon reported a 69 percent gain in first-half net income.
"Things are very tough for Japan Airlines," said Yasuhiro Matsumoto, a senior analyst at Shinsei Securities Co. in Tokyo.
"Surging jet fuel costs and no recovery in domestic demand have been blows to the airline. It's not easy to close the gap with All Nippon."
Japan Airlines had one-time gains of 12.8 billion yen in the first half, largely from selling securities. The airline sold shares in East Japan Railway Co. and Tokyu Corp. in the first half. The company will sell more assets in the second half, said Tetsuya Takenaka, a senior vice president of the airline, speaking to journalists in Tokyo.
The company's fuel costs surged 15 percent to 209.2 billion yen in the period. Jet kerosene cost an average of $85.8 per barrel in the quarter ended September, 14 percent more than the $75 a year earlier, according to Bloomberg data. Jet fuel, which climbed to a record $93 in Singapore on Aug. 8, traded at $73.3 yesterday. Japan Airlines said in August it has hedged 75 percent of its fuel needed this fiscal year.
President Haruka Nishimatsu said last month the company must return to profit to convince banks to refinance its debt, the highest of any Asian carrier. Japan Airlines needs to repay about 220 billion yen by the end of March. The carrier may increase its borrowing and does not plan to sell more shares, Takenaka said.
Japan Airlines carried 22.19 million passengers domestically in the first half, 0.4 percent less than a year earlier and fewer than All Nippon's 23.39 million.
"Corporate account passenger traffic was stagnant," the company said in a statement.
The number of passengers on international services fell 6.5 percent to 6.7 million in the six months ended Sept. 30, after Japan Air trimmed money-losing flights to regain profitability, the company said.
Second-quarter net income rose 7.4 percent to 28.3 billion yen, while operating profit declined 16 percent to 40.1 billion yen. Sales in the second quarter rose 3.1 percent to 628 billion yen. Second-quarter figures were derived from first-half earnings released by the company today.
In the first half, the company had net income of 1.5 billion yen compared with a loss of 12 billion yen a year earlier. Operating profit, or sales minus the cost of goods sold and selling, general and administrative expenses, fell to 8.1 billion yen from 15.7 billion yen and sales grew 3.4 percent to 1.15 trillion yen.
"I can hardly imagine a scenario for JAL's full-scale recovery from next year onwards," said Satoru Aoyama, an analyst at Fitch Ratings, which rates the company's "BB-," three notches below investment grade.
"The airline lacks clear restructuring measures to cope with tough situations as it faces higher fuel costs and intensifying competition in the domestic market."