Annual Report Profile JAL Group Overview Consolidated Financial Highlights Consolidated Operating Highlights Message from the Group CEO Interview with the Group CEO Spreading New Wings of Trust Review of Operations Fundamental Policies and Actions Regarding Corporate Governance 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

Review of Operations

International Passenger Operations International passenger operations are steadily rebounding from last year's levels, which were depressed by a string of events including the SARS outbreak, although the rebound is slower than we had hoped in some areas such as group flights to Southeast Asia. Revenue passengers increased by 25.5% over the previous year's level, or a growth of 16.6% on a paying passenger-kilometer basis.

ACTIONS AND ACCOMPLISHMENTS IN THE TERM

Route operations

This year we aggressively built up our business in the booming China market, inaugurating services between Tokyo and Hangzhou, Osaka and Hangzhou, and Osaka and Tsingtao, while in the Southeast Asia market we also added a service between Osaka and Hanoi and worked to build demand for these services. In conjunction with the opening of the Central Japan International Airport, we moved flights previously originating from or destined to Nagoya Airport to the new facilities, while also inaugurating services to meet the needs of customers in central Japan, such as new routes to Paris and Guangzhou, increasing flights to Manila, Bangkok, and Busan, and switching to larger aircraft. New aircraft in the fleet include two Boeing 777-300ER models, improving the competitiveness of our product offerings.
  We worked to improve competitiveness by extending the JALways model to include all Japan-Bangkok routes, Tokyo- Kona-Honolulu, and Osaka-Brisbane-Sydney.

Marketing

To celebrate the integration of all the international routes operated by Japan Airlines International Company under the JAL brand, in April we ran a "JJ Integration Celebration Campaign." Another campaign, "Feel New Hawaii," commemorated the 50th anniversary of the inauguration of service to Hawaii, showcasing Hawaii's new attractions to stimulate demand. In July we ran a "Power China! JAL" advertising campaign to take advantage of increasing demand for travel to China, as well as a "JAL China Power Up Campaign" to encourage business demand. We packaged tours to the Shanghai region in conjunction with the inauguration of our Hangzhou service to whet tourist demand. In order to encourage inward traffic, we are active participants in the Japanese government's "Visit Japan Campaign," and are working to promote tourism to Japan, not only from neighboring countries, but from Europe, America and Australia as well.
  To respond to the diverse needs of our customers with regard to fares, we expanded our offerings of "Super Advance Goku" fares, "Long Stay Goku" fares, and the "Web Goku" fares which customers can purchase at our web site, and also introduced new "Economy Saver Plus" and "Birthday Goku" fares.
  Committed to improve the quality of our products and services, we continued the rollout of "Shell Flat Seats", an Executive Class amenity which provides private space, now available on seven major European and North American routes. In December 2004, we initiated a service on our London route permitting passengers to connect their laptops to the Internet in-flight and send and receive mail.
  We were rewarded with a 25.5% increase over the previous year to a total of 14.74 million passengers on international routes across the JAL Group as a whole, with revenues up 22.1% over the previous year at ¥671.2 billion.

FUTURE DEVELOPMENTS AND STRATEGY:
MEDIUM-TERM BUSINESS PLAN

Our approach to route planning will be to rebuild our network in profit-oriented fashion, modifying or eliminating unprofitable routes and reallocating resources to profitable, fast-growing routes. On the service front, we will raise passenger amenity quality by rolling out our Shell Flat Seats on more routes to Europe and North America, as well as long-haul overnight routes to Asia. We will design and implement new in-flight dining services that respond to our customers' requirements, breaking away from past service styles if need be. These supply, product, and marketing strategies, designed to reflect the increasingly diverse needs of our customers, and executed in unison, will bring the business back to profitability in fiscal 2006.

Offering in-flight Internet connection service JAL SkyOnline, our in-flight Internet connection service available in all classes, was introduced on our Tokyo-London route in December 2004 and our Tokyo-New York route in May 2005. This service employs a dedicated satellite circuit to allow customers to access the Internet conveniently in-flight from their wireless-equipped laptops. Provided by Connexion by Boeing, a business unit of Boeing, the service will be rolled out in stages, primarily on European and North American routes.