Feb 17, 2012

JAL sets cargo/mail revenue target to Y90 billion FY2013
JAL Pres. Yoshiharu Ueki (right) on February 15 talked about the company's first growth strategy since its business failure

Under the medium-term management plan for fiscals 2012-2016 that was unveiled on February 15, Japan Airlines (JAL) has set its revenue targets for cargo and mail to Y88 billion in fiscal 2012 and Y90 billion in fiscal 2013. In the cargo and mail segment, JAL will continue to adhere to the business model that uses the passenger flight's belly spaces that mainly departs and arrives in Haneda (Tokyo International Airport) and Narita International Airport. The company will promote the development of and expansion of sales for products that capitalize on the location of Haneda, development and increase in sales of the tailor-made service J-Solutions, and other value-added strategies. Further, the strategic utilization of the group company Jupiter Global will also be promoted.

As to the corporate management targets, JAL has been set to at least 10% operating profit margin for five consecutive years and more than 50% in own capital by the end of fiscal 2016. Under the revenue and expense plan (refer to Table 1), JAL is targeting Y138 billion and Y140 billion in operating profit in fiscals 2012 and 2013, respectively, maintaining an operating ratio margin of 11.3% for both years. The company projects that its own capital ratio will reach 40.7% (total capital of Y1,151 billion, Y468 billion of which will be JAL's own capital) by the end of fiscal 2012 and 47.4% (Y1,201 billion, Y569 billion) at the end of fiscal 2013. The plan is to have interest-bearing liabilities amounting to Y200 billion at the end of fiscal 2012 and Y155 billion at the end of fiscal 2013.

JAL plans to invest about Y478 billion into aircrafts (including parts) by fiscal 2016 (refer to Table 2). In line with this, the carrier has been reinforcing its drive to procure new aircrafts, including 787s and 737-800s. With regard to the 787 aircraft, the company has 45 units (comprising 25 units of the 787-8 and 20 units of the 787-9 aircrafts) on firm order, with 33 units due to be introduced to its services by the end of fiscal 2016.The 787-8 aircraft will have a cargo loading capacity of about 16 tons, while the 787-9 unit will have around 20 tons. These aircrafts will intensively be deployed to the medium-distance international routes (Europe/U.S and Southeast Asia).

With regard to the 787-8 aircrafts, four units of this type of carrier had been expected to be introduced to JAL's services within fiscal 2011, but only one unit is due to be received as of today. As a result, the deployment of the aircrafts to Moscow, Delhi and Beijing will be put off to the end of April, from the initial plan of end of March. The Boston route is still due to be launched on April 22, as scheduled (refer to Table 3).

JAL will have a total of 212 aircrafts (72 units are deployed to international flights and 140 to domestic flights) by the end of fiscal 2011 and the company plans to boost that number by 10 units to 222 aircrafts (83 units in international flights and 139 in domestic services) by the end of fiscal 2016. In the domestic segment, JAL plans to decommission large-size aircrafts (777-200) during the period covered by the midterm plan, as well as completely pull out MD90s within fiscal 2012. The ratio occupied by medium-size aircrafts in JAL's fleet will be raised to 84% in fiscal 2016 from the 78% in fiscal 2011.

In the area of costs, the unit cost (consolidated operating cost in flight operation) is targeted to hit Y11 in fiscal 2016. Under its rehabilitation plan, JAL targeted Y12.9 in unit cost for fiscal 2011, but compared to the above medium-term plan, the company projects that its unit cost will stand at Y11.5 thanks to the realization of enhanced cost efficiency amounting to Y110 billion. With this, the attainment of the target for until fiscal 2013 is expected to be frontloaded by two years. Under the above midterm plan, JAL will promote the further enhancement of its costs by Y50 billion, thereby contracting the unit cost in stages to Y11.5 in fiscal 2012 and Y11.3 in fiscal 2013. As for its manpower, the company will keep its current workforce scale at approximately 32,000 people.

With regard to the system, JAL will review the deployment of its employees following the reinforcement of its IT environment (upgrade of passenger-, airport- and cargo-related systems) in a bid to optimize its operations. As for the per-department profit system, this will be rolled out to 35 main consolidated subsidiaries by the end of fiscal 2015.

The above medium-term management plan represents JAL's first growth strategy amid its progressing rehabilitation plan, wherein it filed for the application of the corporate rehabilitation procedure with the Tokyo District Court on January 19, 2010. Under the rehabilitation plan, JAL sought the forgiveness of Y521.5 billion in debt and 100% capital reduction in stocks. It also received an influx of Y350 billion in investments from publicly- and privately-funded institutions that support corporate revival.

During this time, JAL busied itself with the complete decommissioning of B747s and other large aircrafts, reduction in aircraft types, withdrawal from unprofitable routes, cessation of operation of its own cargo planes, amendment of its personnel salary system and restructuring of its affiliated companies, among other actions. As a result, the company managed to post Y188.4 billion in operating profit in fiscal 2010. It is projected that JAL will be able to register operating profits in the Y180 billion level in fiscal 2011 as well.

The gist of the interview with Ueki, who officially assumed the presidency at JAL on February 15, is as follows.

*Our company is still on the way up and in the future, I think we need to shift to the stable cruise flights early on. By further deepening and applying the two gems that we received from our Honorary Chairman Kazuo Inamori, comprising the JAL philosophy and per-department profit system, there is no shred of doubt that we will become a company that will be chosen and loved by customers the world over.

While being advised by Inamori, who laid the foundation that enabled the company to exert its best efforts and pursue revenues two years after it collapsed, as well as Chairman Masaru Onishi, JAL aims to base its business in safe operation toward the building of a strong company that can withstand any risk.

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