• Airport funding. In view of the importance of airports to the nation’s economy we recommend that the government makes use of the general account of the national budget for airport investment rather than relying totally on aviation-generated funding (airport fees, landing charges etc.)
• Investment in Tokyo’s Haneda Airport to provide a capacity increase to improve service to and from the metropolitan area should not rely on funding from increased public user charges only.

• Japan’s airport landing fees should be brought into in line with international standards (Japan has some of the highest landing fees in the world, more than three times the international standard)
• In the current move to encourage more visitors from overseas to Japan, with 2003 billed by the government as the ‘First year of Japan Tourism’, the government must play a role in supporting not only infrastructure improvements but also the promotional efforts of the Japanese travel and tourist industries.

1. PHASE 2 ? APRIL 2004

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Phase 2 of the integration takes place from April 2004 when two new airlines will be established, Japan Airlines Domestic (in Japanese, JAL Japan) and Japan Airlines International. The international carrier will include international cargo operations.

The new airlines will use only JAL flight numbers for domestic and international flights. All services will be unified under the JAL brand. There will be new uniforms for employees of the new companies.

2. GROUP MANAGEMENT STRUCTURE



Under the holding company, there will be three major air transport related business segments: domestic passenger, international passenger and cargo operations.

Functions such as passenger sales activities and passenger cabin operations will be common to both passenger airline business segments, domestic and international. Flight operations, maintenance and airport operations will be common to all three air transport business segments.

Serving the group businesses will be shared service centers for accounting, finance etc.

Separate to the three major business segments are independent subsidiary businesses not directly related to air transportation.

3. ORGANISATION AND MANPOWER

The new organization is focused on greater efficiency by eliminating duplication of routes, services and facilities, producing a fast decision-making management structure. By the end of FY2005 (March 31 2006) the plan envisages the reduction of about 3,600 jobs.　

From April 2003 consolidation of business premises begins with the holding company Japan Airlines System Corporation (JALS) and the head office of Japan Air System relocating to the JAL Building at Tennozu Isle, Shinagawa, Tokyo, the JAL Group headquarter building.

In April 2004, when phase 2 of the integration begins, the holding company (JALS) and the two new airlines, Japan Airlines International and Japan Airlines Domestic, will be based there.

At the same time, the maintenance departments of Japan Airlines and Japan Air System will be relocated to the M1 building at Haneda Airport, now the JAS headquarter building.

4. SYSTEM INTEGRATION

1. INTERNATIONAL PASSENGER BUSINESS

1. With this year being the first year of the government-supported campaign to encourage tourism to Japan an increase in the number of overseas visitor is expected and we envisage two-way traffic growth especially on our Asian and China routes. So the JAL Group will be focusing on these routes.

INTERNATIONAL PASSENGER TRAFFIC FORECAST

	FY2003	FY 2004	FY 2005
CAPACITY (ASK) VS. PREVIOUS YEAR	+ 1.0%	+2.0%	-1.0%
DEMAND (PAX NBR) VS. PREVIOUS YEAR	+ 7.0%	+3.0%	+ 2.0%
Unit yield per passenger	-2.0%	- 1%	0.0%

ASK = available seat kilometers, an industry measure of capacity

2. NETWORK: The JAL Group will expand its network of Asian and China routes and services. There are no major changes planned for European and North American routes, where the emphasis will be on current destinations. The group will continue with its present alliance policy of forming bilateral alliances with partner carriers (now 21 in total).
3. AFFILATES: JAL Group policy for JAPAN ASIA AIRWAYS, a subsidiary serving Taiwan routes, with be to maintain capacity and introduce new aircraft. The Group will expand the role of JALways, a low-cost international subsidiary airline, to and introduce the airline to more routes to improve cost-competitiveness.

2. DOMESTIC PASSENGER BUSINESS

Following the integration, the JAL Group will have the biggest domestic network in Japan serving 59 destinations over 166 routes with a total of 980 flights a day. However, during the next three years we expect slow, even stagnant demand increase due to the dull economic situation.

JAL GROUP DOMESTIC TRAFFIC FORECAST

	FY2003	FY 2004	FY 2005
CAPACITY (ASK) VS. PREVIOUS YEAR	+ 2.0%	-1%	0.0%
DEMAND (PAX NBR) VS. PREVIOUS YEAR	+ 1.0%	0.0%	0.0%
Yield per passenger	+4.0%	+ 1.0%	+ 1.0%

1. During the period of the new plan, there is the prospect of new slots coming available at Haneda airport. Three new domestic airports will open or be expanded (new Kita-Kyushu Airport, Kobe Airport and Okadama Airport, serving the city of Sapporo in Hokkaido). A planned reallocation of slots at Haneda airport in 2005 could add to increased competition but there are no details of how this distribution will be made, which adds to the uncertainty.

 

2. NETWORK: the JAL Group now offers the most frequencies and will continue to maintain the most convenient flight schedules on the high demand trunk routes using large aircraft. We are also providing better regional services and we will maintain these through our affiliate airlines using smaller, commuter aircraft.
3. AFFILIATES:

JAL EXPRESS ?( JEX) a low-cost 737 operator based in Osaka (Itami) will expand its route network. Japan TransOcean Air, another 737 operator based in Okinawa and the Ryukyu islands will develop its products and services.

J-AIR, a West Hiroshima-based commuter airline using Bombardier CRJ-200 regional jets will increase flights on profitable routes serving Osaka (Itami) and Nagoya.

Japan Air Commuter, based in Kagoshima and operating to islands off the south coast will continue its fleet renewal program by adding more Q400 aircraft (replacing YS-11s)

Hokkaido Air Commuter (HAC) will expand services in the Sapporo area thus intensifying JAL Group coverage of Hokkaido, the northernmost island of the four main islands of Japan.

3. INTERNATIONAL CARGO SERVICES

Following joining WOW ? a global cargo alliance including other major cargo airlines ? the JAL Group cargo business emphasis will be on developing the range and scope of its time-sensitive, high value-added freight products and services, marketed under the J-Products label.

1. From 2003 the group expects annual growth averaging 4-5%. Cargo plans include maintaining capacity to match demand, especially on Asia and China routes. The group expects a generally smooth increase in demand, mostly based on traffic flow between Asia and the USA.

 

INTERNATIONAL CARGO TRAFFIC FORECAST

	FY 2003	FY 2004	FY 2005
CAPACITY (ATK) Vs. previous year	+ 3.0%	+ 3.0%	+ 6.0%
DEMAND (TONS) Vs. previous year	+ 2.0%	+ 3.0%	+ 4.0%
YIELD per ton	+ 4.0%	+ 2.0%	-2.0%

 

2. NETWORK: On international routes､ we see the need to gradually expand capacity on Japan-China routes. We envisage no significant changes on transpacific or Europe routes. We will increase capacity as needed using our own resources or by code shares as the situation requires. On domestic routes we will provide better cargo services using our expanded network.

4. FLEET PLAN

UNITS BILLIONS OF YEN