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Review of Operations

International Passenger Operations

Demand slumped as a result of factors such as the situation in Iraq and the outbreak of SARS. A variety of measures were formulated to minimize the impact of these factors, including a reduction in the number of flights and the use of smaller aircraft, as well as cuts in operating expenses. With the increase of customer satisfaction the primary focus, the Group will devote its efforts to enhancing service quality and building a more efficient operating structure.

Supply and Demand Forecast in International Passenger Operations (Change from previous year) Fiscal year 2004 2005 2006 Supply (available seat-kilometers) 6.50% 1.00% (1.00)% Demand (number of passengers) 33.3%* 4.00% 2.00% Yield per passenger (4.50)% 0.00% 1.00% * Although the number of international passengers for FY2004 is forecast to increase by 33.3% over FY2003, in comparison with FY2000, prior to the 9/11 terrorist attacks, the number will still be down by 2.0%.

MEASURES TAKEN AND RESULTS FOR THE TERM

Route operation

During the first half the Company formulated a plan for routes and numbers of flights that included increases in flights on the Nagoya - Beijing, Nagoya - Tianjin, Fukuoka - Shanghai, and Tokyo - Hanoi routes. In the event, however, the provision of flights had to be adjusted carefully to deal with the effects of circumstances such as the situation in Iraq and the SARS outbreak, with the result that operations were scaled down to 84% of the initial projections.

  The second half brought a recovery, particularly in business demand originating from Japan, enabling the Company to expand its route network. Taking advantage of the increase in transportation capacity permitted as a result of the aviation talks between Japan and China in July, it increased the number of flights, including on the routes between Osaka and Dalian, Shanghai, and Guangzhou, and on the Tokyo - Dalian route. In parallel with this it increased flights on the Tokyo - London route from one to two daily.

Marketing

Promotional campaigns were used to stimulate demand by alleviating the anxieties about overseas travel that people had been feeling as a result of the Iraq situation and events such as the SARS outbreaks. Among these was the “Fly JAL! − Over the Ocean!” campaign, which for a one-year period featured popular stars in advertising literature and sales-promotion activities.

  Steps were also taken to develop new products to meet the expansion of routes to China. For example, in cooperation with the China National Tourism Administration, JAL inaugurated the JAL “Dynasty Express Bus,” for which the stretch of the Yellow River Valley from Xian to Zhengzhou in Henan Province was named the “Dynasty Road,” and marketed this in a tour package.

  Other measures were implemented to broaden the range of travel products and cultivate new demand. These included the proactive promotion of a “Silver Wedding Trip” traveling style targeted at older people: age-groups in which there is a relatively healthy degree of wanderlust.

  Other positive measures to cultivate demand included the operation of services using late-night arrival/departure slots at Haneda Airport, and an increase in the operation of daytime charter flights on international routes. Efforts to promote visits to Japan by overseas travelers included vigorous participation in the “Visit Japan” campaign, which is being conducted in line with the Japanese government’s policy of making Japan a “nation built on tourism.” Plans were also drawn up for tours for individual travelers interested in Japanese culture and for collaboration with East Japan Railway Company, all as part of efforts to enhance promotional schemes for stimulating inward tourism. In these, the priority target regions were the United States, China, Korea, Hong Kong, and Taiwan.

  In addition, rapidly growing market needs were addressed by means of a number of innovations. These included the institution of Web discount fares available for purchase on JAL Web sites, the offering of paperless air tickets (the JAL e-Ticket), and the promotion of the use of automatic check-in machines on international routes. “Web Goku,” the fare available exclusively through the Internet, has matched the increasing reluctance of customers to travel as members of large groups, with the result that its use has spread through the market and sales have grown strongly. Also, the two latest types of seat, the NEW SKYSLEEPER SOLO and the JAL SHELL FLAT SEAT, were introduced on the London and New York routes, where they have received an excellent reception from passengers for their feel of heartfelt hospitality and comfort.

  These Group efforts achieved a recovery of demand on routes to Europe, America, Hawaii, Micronesia, and Oceania, but the recovery in tourism demand on routes to China and Southeast Asia lagged behind. As a result, the JAL Group’s total passenger numbers on international routes fell by 19.8% from the previous year, to 11.74 million, and revenues declined by 17.8%, to ¥549.7 billion.

FUTURE OUTLOOK AND STRATEGY: MEDIUM-TERM BUSINESS PLAN

The Group will develop the foundation of its business in a way that increases service quality and also ensures the flexibility to build a lower-cost operating structure to respond promptly to changes in the market. At the same time it will endeavor to maintain yields and increase seat load factors by being thorough in allocating resources to high-revenue, fast-growing routes, and by restructuring the network in a manner tailored to customer needs and to market characteristics. Specifically, routes with aircraft fitted with the new JAL SHELL FLAT SEAT for business class will be expanded, the scale of operations of JALways, the Group’s low-cost carrier, will be increased, and administrative processes will be reformed by greater use of e-business. In ways such as these, the Group will continue its efforts to create a more efficient operating structure.

International routes mark their 50th anniversary On February 2, 1954, JAL inaugurated Japan’s first postwar international scheduled flights on the Tokyo (Haneda) - Honolulu - San Francisco route with a DC- 6B aircraft seating 36 passengers. Over the ensuing 50 years, aircraft types have progressed to the B747 and others, and the JAL Group’s overseas network has today spread to encompass 30 countries and territories, 118 airports, and 245 routes. In fiscal 2004 a promotional campaign to celebrate the 50th anniversary will be conducted with the aim of generating greater demand.