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Review of Operations

Cargo Operations

Shipments were weak during the first half as a result of factors such as a decline in cargo space caused by cuts in the number of passenger flights, but they were firm in the second half. There was remarkably strong growth in shipments of digital consumer-electronics products such as digital cameras and DVD-related equipment, which became one of the principal types of merchandise transported in cargo services on JAL’s international routes.

MEASURES TAKEN AND RESULTS FOR THE TERM

Route operation

On international routes, cargo space on passenger flights was reduced in the first half of the year under review. Since the second half, however, there has been robust demand on Asian routes, particularly to mainland China and Hong Kong, and on European routes, and it has also been picking up on Pacific routes. In consequence, demand through the year as a whole remained at around its year-earlier level. JAL strengthened its routes to China, where there is massive demand for cargo, including by starting cargo flights on the Tokyo - Xiamen route, opened in April, and by increasing the number of flights to Hong Kong in September and on the Shanghai route in November.

  On domestic routes, demand was buoyed by the recovery trend in the domestic economy during the second half of the term. As a result, total domestic cargo shipments showed a year-on-year increase for the first time in three years.

Marketing

On international routes the Group made use of the expanded network created through its alliance strategy in the field of international cargo business. For example, in July 2003, it substantially increased customer convenience by offering high-value-added cargo products − J-PRODUCTS − that pledged the fastest and highest-priority handling. It also applied information technology to enhance the efficiency of international air cargo operations and to accelerate the processing of transactions. In February 2004, for example, it started operation of its “Ezycargo” site, which enables customers to make international cargo reservations and to track cargo movements through the Internet.

  Total cargo transportation volume fell by 9.2%, to 10,032.25 million ton-km. Revenues slipped by 2.6%, to ¥161.3 billion, in part because of a fall in unit revenue owing to factors such as the appreciation of the yen.

  Domestic cargo operations were impacted positively by the expansion of the network resulting from the integration. In consequence, revenues remained around their year-earlier level, in spite of the reduction of cargo space on high-demand routes that resulted from the reorganization of the domestic flights of the Group. The JAL Group’s total transportation volume fell by 0.5% from the previous year, to 3,054.72 million ton-km, but revenues rose by 1.1%, to ¥42.6 billion.

FUTURE OUTLOOK AND STRATEGY: MEDIUM-TERM BUSINESS PLAN

In international cargo operations the opening of the Central Japan International Airport is expected to change the competitive environment. With respect to routes to China, where demand is expected to continue to grow strongly, the Group will continue to build its operating foundations and increase transportation quality through the development of its organizational and operating structure and through personnel recruitment and training. Steps to increase revenues and cut costs include establishing cargo space supply capacity to meet the growth in international cargo demand, providing high-value-added products and services tailored to meet increasingly sophisticated and diverse needs, and using alliances with other companies, for example through the WOW alliance − a four-way agreement among Lufthansa Cargo, SAS Cargo, Singapore Airlines, and JAL Cargo − in parallel with the enhancement of the Group’s own network.

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