Financial Results Announcement (August 3, 2020)

I will explain the consolidated financial results for the first quarter of the fiscal year ending March 31, 2021.

First of all, JAL has adopted International Financial Reporting Standards (IFRS) from this fiscal year. Therefore, the operating performance indicator has been changed from operating profit to EBIT (Earnings Before Interest and Taxes), which represents the performance of the company's operations and investments.

Due to the impact of the coronavirus pandemic, financial results for the first quarter were extremely severe. Sales revenue declined 78.1% year over year to 76.3 billion yen, EBIT declined to negative 131 billion yen, and net profit/loss declined to negative 93.7 billion yen.

In response to the sharp drop in passenger demand, we controlled variable costs by flexibly reducing supply and curbed fixed costs as well. However, the cost savings did not fully compensate for the revenue decline. As a result, it was the second largest deficit ever recorded for the quarter, following the deficit in the first quarter of the fiscal year ended March 31, 2010 (Final loss of 99 billion yen).

In international passenger operations, demand virtually vanished as countries continued to impose severe entry restrictions. As a result, passenger traffic declined 98.6% year over year and passenger revenue declined 97.9% year over year to 2.7 billion yen. The situation has not changed significantly even now.

In domestic passenger operations, restraint of travel across prefectures led to an unprecedented drop in demand. Passenger traffic declined 86.7% year over year and passenger revenue declined 85.1% year over year to 18.9 billion yen. However, domestic passengers have gradually recovered since the state of emergency was lifted in late-May.

In cargo and mail operations, amid the tight supply-demand balance caused by the global reduction in supply, we actively operated cargo flights using passenger aircraft and operated a total of 3,754 flights from April through June. As a result, although cargo volume decreased significantly from the previous year, cargo and mail revenue increased 16.9% year over year to 26.5 billion yen from the large improvement in unit price. From June, we started operations of cargo-only flights on the Narita-Bangkok route using ZIPAIR-operated aircraft. We will do our best to support the logistics network and make effective use of our fleet.

Next, I would like to explain our cost reduction and investment control initiatives in response to the coronavirus pandemic.

Operating expense decreased 125 billion yen from the previous year through the reduction of operational expenses from flight reductions and the reduction of fixed costs such as personnel costs, advertising costs and IT costs.

Of these cost reductions, revenue- and supply-linked costs, or so-called "variable costs," decreased by 108.4 billion yen, which is equivalent to approximately 40% of the year-on-year revenue decline of 272.4 billion yen.

On the other hand, fixed costs such as personnel costs, advertising costs and IT costs decreased by 16.6 billion yen from the previous year. As our contingency measure to reduce fixed costs by 60 billion yen this year is a comparison against the cost increase from the initially-planned international passenger business expansion to prepare for additional slots at Tokyo metropolitan airports, in this sense we have already achieved a reduction of 29 billion yen, which is half the targeted amount. We will strive to further reduce fixed costs, adding 30 billion yen to the targeted amount, and cut fixed costs by 90 billion yen in total this year.

Regarding our investment plan, we targeted a reduction of 50 billion yen in investment costs from our initial estimate. We will further reduce aircraft investments by 30 billion yen and cut investment costs by 80 billion yen in total this year.

We will continue to speedily implement bold cost reduction and investment control measures to mitigate the impacts on business performance.

Next, I would like to explain our financial position and the current state of financing.

Regarding liquidity on hand, we have raised approximately 300 billion yen in cash since February 2020, and also raised the commitment line by 150 billion yen to 200 billion yen. In addition to flexible financing, by controlling cash disbursements, cash on hand and deposits at the end of June stood at 394.3 billion yen.

On the other hand, interest-bearing debt due within one year including lease fees is 50.7 billion yen and most of the amount is secured in long-term capital. The total remaining balance of interest-bearing debt is increasing. But it is less than 30% of other companies in the same industry, and we maintain a healthy debt-to-equity ratio 0.5 times that of other companies.

In addition, cash burn in the first quarter has been reduced to approximately 45 to 50 billion yen a month. From the second quarter, cash burn is expected to decline, as refunds for booking cancellations have settled down. We will continue to make every effort to secure sufficient liquidity on hand by borrowing cash in advance as much as possible to prepare for prolonged impacts of the coronavirus crisis.

Regarding our full-year earnings forecast, due to the unforeseeable circumstances of the coronavirus pandemic, we are unable to announce an earnings forecast for this fiscal year. We will publish it as soon as the situation allows us to make projections to a certain extent.

Incidentally, in the summary of financial statements, we have presented, as reference, results of calculation of year-over-year fluctuations in international and domestic passenger revenues in a proposed demand recovery scenario for FY2020 based on certain assumptions.

Although the outlook for demand recovery is uncertain and we are not in a position to give our view, based on this demand recovery scenario, total international and domestic passenger revenue for FY2020 is expected to remain at 35%-45% levels from the previous year.

When factoring in other revenues and cost reductions including fixed cost reductions in this revenue decline, profit, on an EBIT basis, is expected to decline by approximately 50% of the decline in consolidated sales revenue.

As I mentioned earlier, given the company's severe business performance, we are under pressure to secure liquidity on hand as our top priority. To our regret, we will therefore not pay an interim dividend for the current fiscal year. We apologize sincerely to all our shareholders. We kindly ask for your understanding of the current situation of the company. The year-end and annual dividends have not yet been decided yet.

The JAL Group will endure this unprecedented crisis by implementing contingency measures speedily and effectively and will work determinedly to accumulate further profit. In addition, we will fulfill our social responsibilities by taking heightened measures to prevent the spread of infection for the safety and security of our customers and by continuously supporting the movement of people and the logistics network for pharmaceuticals, food and other commodities.