Financial Results Announcement (November 1, 2022)

I would like to explain the financial results for the second quarter of the fiscal year ending March 31, 2023.

First, I will explain our consolidated results in general.

Passenger demand has begun to pick up as moves to prevent the spread of COVID-19 while conducting social and economic activities have begun to permeate society. Second-quarter revenue doubled to 618.5 billion yen, up 112.8% year on year. Operating expense increased 43.9% year on year despite higher fuel prices, resulting in earnings before interest and tax (EBIT) of 300 million yen and a net loss of 2.1 billion yen. In the second quarter alone, EBIT was 27.9 billion yen, the first quarterly profit since the third quarter of fiscal 2019.

Next, I will explain the results in each business area.

First, in the full service carrier business area, international passenger revenue increased by 5.6 times year on year to 163.2 billion yen. In addition to a gradual recovery in inbound and outbound demand partly attributable to the resumption of overseas corporate trips, we captured robust transit demand between Asia and North America. Domestic passenger revenue increased by 2.3 times year on year to 208.6 billion yen. Despite the impact of the seventh wave of infections, domestic demand steadily recovered by the summer peak season. Cargo and mail revenue increased by 1.3 times year on year to 126.2 billion yen. In international cargo operations, shipping weight decreased from the previous year due to a decline in air cargo from Japan, but we were able to maintain high freight rates in contrast to other airlines, resulting in a further increase in cargo revenue from the previous year, when performance was strong.

Revenue in the LCC business area totaled 11.5 billion yen. With its full-scale launch of LCC operations, ZIPAIR posted a large increase in passenger revenue and achieved greater-than-expected ancillary revenue as well. The medium- and long-haul LCC business model of ZIPAIR is growing steadily. SPRING JAPAN and Jetstar Japan, however, are struggling with tough business environments on China routes and Japan domestic routes.

The Mileage, Lifestyle and Infrastructure business area posted 101 billion yen in revenue. The mileage business continues to post stable profits, and the commerce business has expanded as a result of welcoming JALUX to the JAL Group. Among business areas, the Mileage, Lifestyle and Infrastructure business area is growing steadily as the second largest after air transportation.

We will steadily implement business restructuring as outlined in our Medium Term Management Plan.

Regarding cost management, fuel costs have risen dramatically to 95.8 billion yen year on year because of rising fuel prices and exchange rate trends. However, non-fuel costs increased by only 26% compared to the 64.6% year-on-year increase in overall ASK (available seat km). It is fair to say that we are firmly in control of costs. Actual fixed cost was 244.6 billion yen, slightly below the 500 billion yen yearly target as we promised in our Medium Term Management Plan.

Next, I will explain our consolidated financial position and cash flows at the end of the second quarter.

Regarding our consolidated financial position, the equity ratio based on credit ratings is 39.0% and the net debt equity ratio is 0.2 times, which show that we are financially sound. We have sufficient liquidity as of the end of September, with cash and deposits of 542.9 billion yen and an unused commitment line of 250 billion yen.

As for cash flows, EBITDA was 83.4 billion yen. Operating cash flow also improved significantly by 216.1 billion yen year on year, partly attributable to an increase in advance payments received resulting from the recovery in passenger demand, which brought in a cash inflow of 120.2 billion yen. Free cash flow also improved significantly with an inflow of 67.7 billion yen.

Next, I will explain revisions to our full-year earnings forecast for fiscal 2022.

Our full-year consolidated earnings forecast of EBIT of 80 billion yen and a net profit of 45 billion yen is unchanged.

First, we have revised our market assumptions to $125 per barrel of Singapore kerosene and 145 yen to the U.S. dollar. As a result, fuel costs and non-fuel costs are expected to rise significantly.

Regarding revenue, although we expect a decline in domestic passenger revenue due to the impact of the seventh wave of infections, revenue overall is expected to exceed the initial forecast by 14 billion yen, as we project an increase in international passenger revenue due to the easing of border restrictions and an increase in international cargo revenue as demand for air cargo remains strong.

As for operating expense, as I mentioned earlier, fuel costs are likely to exceed our forecast by 32 billion yen due to fuel price and exchange rate trends. However, non-fuel costs are expected to decrease by one billion yen, which will enable us to contain the increase in operating expense at 31 billion yen compared to our initial forecast.

Despite headwinds such as fuel prices and exchange rates, we will take all possible means to maximize profits, such as implementing revenue stimulus measures, taking full advantage of tailwinds such as the rapid increase in inbound demand and growing tourism demand prompted by the nationwide travel support campaign in Japan.

Together with gains from sales of aircraft, we will strive to achieve our full-year earnings forecast of EBIT of 80 billion yen and a net profit of 45 billion yen.

Finally, I will explain about dividends.

We are making utmost efforts to pay year-end dividends and will announce our forecast as soon as we are able to assess the situation and get a better outlook of the business environment. 

Finally, I would like to thank once again all parties concerned for supporting the aviation industry by way of the travel assistance campaign in Japan, the reduction of taxes and public charges, and fuel subsidies. We will do our best to provide unparalleled service to our customers with gratitude for their continued support, move ahead with business restructuring as set forth in our Medium Term Management Plan, and make concerted efforts to live up to everyone's expectations.