Japan Airlines (JAL) appears to have emerged as the leader in the first round of competition following partial deregulation of the Japanese domestic market, posting a sharp increase in profits over the first six months of its financial year.
By contrast, the profits of Japan's dominant domestic player, All Nippon Airways (ANA), dipped as competition sharpened. Japan Air System (JAS) also slumped close to break-even over the six months to September.
JAL posted net profits of ´20 billion ($166 million) for the first half, a strong turnaround from the ´2.7 billion posted a year ago. The carrier says, however, that the economic outlook remains "unclear" and is "influenced by increasingly severe competition". JAL predicts break-even for the full year, after a ´9 billion loss in 1996/7.
Despite the caution, JAL has made headway in its efforts to increase its domestic presence. Domestic passenger numbers were up by almost 11% on Japanese routes, although sales rose by only 4%.
The airline says that the positive results for the first half can be attributed to the airline's skilful use of the new discount-fare system - an attractive frequent-flyer programme - a boost in the number of domestic flights and extended depreciation terms for its aircraft.
These helped offset a small decline on international routes, where passenger numbers fell, as an increase in business traffic out of Japan was offset by lower tourism on key routes to Hong Kong and Hawaii. Operating revenues were up by 5.5%, to ´633 billion, while operating expenses crept ahead by 2%, to ´596 billion.
ANA, which has been expanding its international services, posted a 28% drop in net profits for the half, to under ´6 billion. It admits that it performed poorly in using the discount-fare system, particularly in the first quarter. Flight disruptions caused by typhoons in September in Kyushu were also a factor, it says.
Company president Kichisaburo Nomura also attributes part of the blame for the downturn on the sluggish domestic economy and increasing competition.
JAS has also been hit by JAL's drive for increased domestic-market share, seeing pre-tax profits slashed to ´24 million, from ´5.1 billion a year earlier.
Douglas Hiyashi, airlines analyst at Barclays de Zoete Wedd (BZW) believes that the trend for the whole year will be much the same. "JAL will continue to outperform ANA and JAS, especially since many of the benefits of its restructuring programme, particularly job lay-offs, will only be seen in the second half of the year," he says. He expects that a pick-up in international traffic and falling fuel prices will be of greatest benefit to the flag carrier.
Source: Flight International
