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Review of Operations

Cargo Operations Demand for international cargo services jumped sharply from the previous year, supported by the strong world economy, robust economic activity in the U.S. and the continued dynamic growth of the Chinese economy. Demand for transporting digital appliances such as digital cameras and DVD-related devices continued last year's striking growth.

ACTIONS AND ACCOMPLISHMENTS IN YEAR UNDER REVIEW

Scheduled operations

Scheduled international cargo operations saw increased flights to Shanghai starting April 2004, and a new service between Tokyo and Guangzhou starting in November, illustrating our expansion of service to China, whose energetic growth is expected to continue even into the medium term. Moreover, in conjunction with the opening of the Central Japan International Airport in February 2005, we launched the first cargo service from central Japan to the U.S., to capture the demand from one of the Japanese economy's premier manufacturing regions.
  Our deployment of two Boeing 747-400 cargo freighters to increase capacity was an industry first in Japan. The fuel efficiency of the new model gives it a 19 ton greater takeoff weight and allows it to fly more than 20% further than the 10 Boeing 747-200 freighters which the JAL Group currently owns. Together with the new model's improved temperature management capabilities, this means we can deliver more of our customers' precious cargoes more safely and across greater distances.

Marketing

Internationally, the cargo business was strong, driven by exports to all regions, with business booming on U.S. routes, led by automotive-related demand, European routes showing robust demand for digital appliances and seasonal demand for air conditioners through the summer, and Asian routes enjoying strong demand for electronic components and semiconductor manufacturer equipment.
  Domestically, the cargo business performed relatively well in the first half, boosted by economic recovery continuing from the previous year, but then slowed due to more flight cancellations caused by the typhoons and lower shipments of agricultural products originating from poor weather, compounded by the sense that the economy was stagnating.
  Total transport volume on international cargo routes thus rose 7.1% year-on-year to 4,681.72 million ton-kilometers, with revenues up 12.0% year-on-year to ¥171.3 billion. Total transport volume on domestic cargo routes rose 4.9% year-on-year to 394.56 million ton-kilometers, with revenues down 0.9% to ¥30.5 billion.

FUTURE DEVELOPMENTS AND STRATEGY:
MEDIUM-TERM BUSINESS PLAN

We will aggressively develop growth markets such as China and other Asian countries, and enter the domestic overnight cargo market, thus expanding our existing core areas.
  In parallel with upgrading our existing B747s to B747-400s, we will introduce medium-sized freighters, ensuring our capacity can meet the growth in demand for international cargo.