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Dream Skyward II: Stepping-stone to become “the world’s No.1 airline group”

Making deeper cuts in costs

Concrete measures in the medium-term business plan 1

The Company’s financial condition has deteriorated considerably in recent years under the severe impact of external factors such as the terrorist attacks on the United States and the SARS outbreak. Since the early 1990s, the JAL Group has been implementing structural reforms that have included the cutting of personnel costs, and these have been producing steady results. In addition to these existing structural reforms, the current FY2004-06 Medium-Term Business Plan includes exhaustive measures for cutting costs. Among these are measures to reduce personnel costs, including making a start on the reform of the retirement benefit scheme, and the reduction of investment.

Business portfolios

By fiscal 2006 the overall scale of assets will be reduced by 4%, and ROA will be raised to 6%. In international passenger business the scale of operations will be optimized through a downsizing program involving the reduction of assets. In domestic passenger operations, ongoing steps will be taken to increase competitiveness and ensure effective use of assets through the integration, so as to enhance profitability still further. In international cargo operations, investment will continue to be made for the purpose of steadily securing demand in growth markets.

Measures to address personnel costs

Given the present operating environment characterized by dramatic fluctuations in demand, there is an urgent need to decrease fixed costs. Accordingly, to accelerate cost reductions the Group is taking a series of cost-cutting measures that include taking advantage of the integration to boost efficiency, promoting e-business methods, switching to low-cost aircraft and equipment, and expanding the operations of its low-cost carriers. In parallel with these, steps are being taken to enhance organizational and staff efficiency, including through the introduction of a new retirement benefit scheme and a program to optimize employee efficiency. The revision of the pension scheme will cut retirement benefit obligations throughout the Group, the aim being to achieve a decrease of ¥57 billion over the three years from fiscal 2004 to 2006.

  Organizational improvements are directed at creating a structure that will facilitate rapid decision-making by eliminating organizational duplication. This will build an efficient operational structure combined with a rapid decision-making structure. The intention is to utilize these changes to streamline the workforce by 4,500 ground staff by the end of fiscal 2006 relative to fiscal 2002. In addition, to maximize the corporate value of Group companies there will be programs designed to educate and enhance the qualities of personnel, including by stepping up personnel exchanges and expanding education and training for Group employees, including staff hired locally by Group companies. Also, to respond flexibly to fluctuations in demand, the Group will expand its flexible system of hiring cabin crew at overseas bases and for part-time employment.

Other cost-cutting measures

The operation of domestic routes was concentrated on JAL Domestic in April 2004, and through that the Company will be able to make steady progress in benefiting from the integration to reduce costs, in particular the reduction of charges for the leasing of facilities within Japan. With respect to the aircraft fleet, MD11s, DC10s, and A300s will be replaced by B767s and B777s, which offer lower operating costs, and the reduction in the total number of aircraft types will help to lower maintenance costs. Another field that needs to be strengthened is that of e-business. The target is to reduce distribution costs related to domestic passengers by ¥5 billion by fiscal 2006, including by reducing staff at call centers and airports and cutting commissions on passenger sales. Costs will also be reduced by speeding up the expansion of the scale of low-cost operating companies within the Group, in particular JALways (international routes) and JAL Express (domestic routes).

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