Annual Report Japan Airlines Corporation at a Glance Consolidated Financial Highlights Consolidated Operating Highlights Message from the Management Interview with the Group CEO Dream Skyward II: Stepping-stone to become "the world' s No.1 airline group" Review of Operations Corporate Social Responsibility (CSR) Activities Management's Review and Analysis of Financial Position Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholder' Equity (Note8) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Auditors Consolidated Subsidiaries JAL and Its Subsidiaries and Affiliates Directory JAL Group Route Network Board of Directors Investor Information

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

Measures to enhance profitability

Concrete measures in the medium-term business plan 2

To augment operating cash flow, the JAL Group is devoting considerable efforts to raising profitability. Providing high-quality services conceived from the customer’s standpoint forms a key part of measures to increase revenue. Each such measure, be it the enhancement of competitiveness by means of a new mileage strategy or the deployment of high-quality services and sales strategies in each business segment, constitutes a step towards enabling the JAL Group to declare proudly that for the traveler, it is always the airline group of choice.

New mileage strategy

A new mileage strategy has been established as a means of increasing revenues. This mileage program is the largest of its kind in Japan, its decisive strongpoint being the base formed by the JAL Group’s domestic and international networks. It has been reorganized in a way that better reflects customer needs and that will help to strengthen competitiveness still further. JAL Mileage Bank (JMB) members currently number some 15.9 million, among which JAL Card members, whose cards function as credit cards, number approximately 1.2 million. The Group is endeavoring to increase the number of JMB members still further by making the program an attractive, high-value-added product. Additionally, it is expected that a tie-up with East Japan Railway Company on the Suica Card, an electronic cash card, will have a direct impact on boosting passenger numbers by increasing the frequency with which JAL’s service is used.

Domestic passenger operations

For domestic passengers the Group has been taking a number of steps in line with the keywords “easy-to-use,” “easy-to-understand,” and “reasonably priced but a high-class feel,” including the standardization of flight names by using the JAL prefix, the strengthening of e-business, and the introduction of the luxury Class-J seat. These are aimed at further increasing the preference for JAL among individual passengers, for whom the unit price is relatively high. The targeted ratio of individual passengers in fiscal 2004 is 64%, for which a 3.4% increase in average unit price is being aimed for. This would bring an increase in revenues of ¥21 billion relative to fiscal 2003. In addition, the ratio of passengers currently using the Internet and other e-business methods to book seats is 40%, and that will grow to more than 50% by fiscal 2006.

International passenger operations

For international passengers, separate strategies have been formulated for Pacific routes, European routes, China routes, and Southeast Asia routes, and on these the goal is to optimize supply by means of the downsizing of aircraft, and thereby increase load factors. For example, on routes to China and other parts of East Asia, operations using medium-bodied aircraft (B767, B777) will be stepped up, and the routes will be developed vigorously. In this segment the sales strategy is to gain more high-yield passengers by reinforcing direct marketing, including through the use of the Mileage Bank, fitting the new high-grade JAL SHELL FLAT SEAT, and stimulating tourism demand among individuals by offering tickets available only on the Web. The target for revenue growth in fiscal 2004 is ¥145 billion relative to fiscal 2003, and ¥27 billion relative to fiscal 2002.

International cargo operations

International cargo operations are encountering very strong demand, and buoyed by an increase in China routes and the start of operations at the new hub airport for international routes near Nagoya (the Central Japan International Airport), revenues in fiscal 2004 are projected to rise by ¥9 billion from fiscal 2003. To ensure product differentiation from competitors, the JAL Group will offer its high-value-added J-PRODUCTS service, the goal being to increase the proportion of total international cargo revenues accounted for by revenue from J-PRODUCTS from 10% in fiscal 2003 to at least 30% in fiscal 2006. In addition, by such means as introducing the B747-400F, with its large freight-transportation capacity, and strengthening the operating structure for the rapidly growing Chinese sector, we will achieve steady growth in the cargo market, with its strong growth potential.

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