Business Risks

The JAL Group is exposed to the following principal risks due to the nature of its business activities, centered on the air transportation business. The JAL Group has defined risk in the Fundamental Policy on JAL Group Management as a condition with the probability of causing serious losses, obstacles that may negatively impact business effectiveness and efficiency, reliability of financial statements, legal compliance and asset preservation, also as external factors such as market changes, epidemics, earthquakes and terrorism, and as a condition in the course of business that may impede the achievement of targets of the Group, and our companies and organizations. To maintain business continuity as a risk resilient airline group, we will conduct appropriate risk management. We have established the Group Risk Management Council chaired by the President to oversee risks of the JAL Group, identify major risks that the Group is exposed to and manage the risks appropriately. In case of incidents that may adversely affect consolidated financial results, it deals with them in coordination with the Financial Risk Committee.
Among statements relating to business status and financial status described in the Securities Report, the major risks that the management perceives as likely to have a material impact on the financial position, business performance and cash flow of consolidated companies are as follows. However, the list is not comprehensive and the JAL Group may be affected by unforeseen risks not described below. This report also contains some forward-looking statements based on information available to the company as of March 31, 2025.

The JAL Group implements a wide range of measures on a daily basis to ensure the safety of our flight operations. However, a single fatal accident has the potential of devastatingly undermining customer trust in flight safety of the JAL Group and lead to a loss of public support. We may also be obliged to provide compensation for any passenger fatalities or injuries in the event of such an accident, which could have a severe adverse impact on the Group’s financial performance. In addition, safety issues related to the JAL Group, the same type of aircraft operated by the JAL Group or our codeshare flights could undermine customer trust in JAL Group’s flight safety and lead to a loss of public support, which could affect our operating performance.
The JAL Group positions safety as the basic foundation for the business continuity of our Group and all employees make unwavering efforts every day to ensure aviation safety. We have a department dedicated to dealing with aviation accidents and also the Group Safety Enhancement Council chaired by the President to ensure thorough safety management across the entire JAL Group. Furthermore, to mitigate various damages caused by aviation accidents and ensure proper compensation to the victims, we currently subscribe to liability insurance covering the compensation amounts and scope which are equivalent to the current industry standards.

① Risks related to short-term impact on business performance
The JAL Group operates the air transportation business not only in Japan but also around the world. A global outbreak of an unknown disease such as COVID-19, which has been spreading around the world since the beginning of 2020, could bring about a sharp drop in air passenger demand due to restrictions on the movement of people to prevent infection, such as government-imposed travel restrictions and voluntary restraint to stay at home or from using aircraft by companies and passengers.
Given that the air transportation business operated by the Group carries a high proportion of fixed costs, such as aircraft expenses and personnel costs, a short-term sharp decline in demand could significantly affect airlines’ business performance, including our Group.

② Risks related to medium- to long-term changes in the business environment
Due to temporary restrictions on the movement of people caused by the spread of pandemics, IT-driven remote work has proliferated in society. Changes in such societal norms and behavioral patterns may lead to shifts in demand for business travel using aircraft, which could eventually impact the business strategies of our air transportation business.
The Group is advancing business structure reforms to disperse business risks by strengthening our LCC business and Mileage, Life and Infrastructure business. Additionally, we have built a system that allows us to proactively respond to cargo demand by possessing cargo aircraft in addition to passenger aircraft, even in situations where passenger demand significantly decreases due to the global spread of pandemics.

The majority of JAL Group passengers use aircraft departing from or arriving at Haneda and Narita airports, making these airports exceptionally significant to the Group’s business. Additionally, our Information System Center, which plays a key role in managing JAL Group flights, reservations and other services, and the Integrated Operations Control (IOC), which controls the global operation and scheduling of our fleet, are both located in the Tokyo area. Consequently, a major earthquake, volcanic eruption, or major typhoon in the Tokyo area could lead to the protracted closure of Haneda or Narita airports, while a fire, terrorist attack or other incidents at these key facilities could lead to a prolonged outage of the Group’s information systems and operational capabilities, which would have a severe impact on the Group’s business operations.
To prepare for the potential suspension of the IOC operations, we have established a crisis management system and a Business Continuity Plan (BCP). As part of these measures, some operational control functions have been transferred to Osaka International Airport. While these transferred functions cannot fully substitute for all the capabilities of the IOC in the Tokyo area, they will serve as a temporary backup to sustain operations until the Tokyo IOC resumes operations.

Climate change caused by global warming has become a major global issue, and if large-scale natural disasters caused by global warming were to occur in Japan more frequently, it may affect our business performance.
The aviation industry consumes significant amounts of fossil fuels, which cause climate change; therefore, CO2 emission reduction is a social responsibility and an extremely important management issue for us. While companies’ social responsibility is getting greater in relation to the global environment, including global warming prevention, environmental regulations regarding CO2 emissions, noise, hazardous substances, etc. are strengthened, and it also affects consumer behavior. Should environmental regulations, such as carbon emissions trading schemes or greenhouse gas emissions tax, be further intensified, or if consumer behavior changes in the future, the Group’s business performance could be affected. Moreover, if our efforts to reduce environmental impact are insufficient, it may undermine the company's reputation in society and affect our business operations.
Therefore, in the FY2021-2025 JAL Group Medium Term Management Plan-Rolling Plan 2025 announced in March 2025, we have positioned the ESG strategy as the paramount component of our management strategies for realizing the value creation and growth, and will accelerate efforts to solve social issues. The JAL Group aims to achieve net-zero CO2 emissions by 2050, and to achieve this target, we will promote the upgrades to fuel-efficient aircraft, adopt innovative operational techniques, and procuring SAF (Sustainable Aviation Fuel) at stable and reasonable prices, as well as applying new technologies such as emissions trading and negative emissions (CO2 removal and capture).
For a detailed overview of our approach to mitigating risks related to climate change, we disclose information utilizing the TCFD (Task Force on Climate-related Financial Disclosures) framework, which is available on our official website.

① External Environment Risk
The JAL Group’s air transportation business operates in Japan and across the globe. Air travel demand may be affected by global economic trends, terrorist attacks, regional conflicts, war and other events, potentially impacting the Group’s business performance. In addition, the JAL Group’s services are partly dependent on services provided by third parties, such as maintenance companies, airport personnel, sky marshals, fuel suppliers, baggage handling companies, security companies, and others. Any issues with the services provided by these third parties could influence the operation of the Group’s businesses.

② Competitive Risk
The JAL Group faces intense competition in areas such as routes, services, and pricing, both domestically and internationally.
In the domestic arena, we compete not only with other Japanese airlines but also with new low-cost carriers and alternative transportation options, such as high-speed rail. Internationally, competition is intensifying with major domestic and international airlines. In addition, alliances, code-sharing, and mileage partnerships formed by overseas and Japanese airlines are further heating up the competition.
Significant changes in this competitive climate and business environment, as described above, could affect JAL Group’s operations and management.
In response, the JAL Group actively develops partnerships with worldwide partner airlines in various forms such as a) joint ventures, b) participation in aviation alliances, c) code-sharing agreements, and d) mileage partnerships.
In addition, for non-airline business segments such as the mileage business, the JAL Group strives to strengthen its customer base by establishing extensive cooperative relationships with partners from other industries. However, if there are significant changes in the business conditions of these partner entities or in the nature of the partnerships themselves, it could impact the Group’s partnership strategies.
To mitigate these risks, we have established systems to monitor geopolitical risks, foster positive relationships with the relevant authorities and business partners, enhance competitiveness in our products and services, implement flexible supply and demand adjustments, and ensure proper management of outsourced services.

In the air transportation business, the JAL Group aims to improve efficiency by upgrading our fleet to new fuel-efficient aircraft and standardizing aircraft types in the fleet. To achieve these goals, we place new orders for airplanes with manufacturers such as Boeing and Airbus. However, if delays occur in delivery schedules due to technical, financial, or other reasons on the part of these aircraft manufacturers or suppliers of critical components such as engines, our fleet plans may need to be revised, potentially impacting the JAL Group’s medium- to long-term operations.
To address this risk, we maintain constant communication with aircraft manufacturers, closely monitoring the situation and revising fleet introduction and retirement plans as necessary to minimize its potential impact.

① Fuel Price Fluctuation Risk
The JAL Group’s business performance is significantly affected by fluctuations in fuel prices. We charge a fuel surcharge to partly cover the impact of higher fuel prices, but fuel price fluctuations are not immediately reflected in the fuel surcharge and it is difficult to pass on the entire increased costs to customers. We also use crude oil hedging transactions to mitigate the risk of fuel price volatility. However, a drop in oil prices may not contribute to an improvement in our operating performance, as the benefits of the decline would not be reflected in business results immediately due to hedge contract positions and other factors.

② Exchange Rate Fluctuation Risk
The JAL Group operates businesses in countries other than Japan, receiving some of the revenues and paying certain expenses in foreign currencies. Notably, as the price of aviation fuel, one of the Group’s major expenses, is largely paid in the U.S. dollar, the impact of U.S. dollar exchange rate fluctuations tends to outweigh the impact on its revenues.
To mitigate fluctuations in financial performance caused by exchange rate fluctuations, the JAL Group employs a policy of using foreign currency revenues to offset foreign currency-denominated expenditures, supplemented by hedging transactions. Additionally, as the majority of aircraft costs are paid in the U.S. dollar, exchange rate fluctuations may impact the asset valuation and depreciation costs of the aircraft. To mitigate these risks, hedging transactions are conducted in a manner that diversifies applicable foreign currency exchange rates.

③ Capital Market Risk and Financial Market Risk
The JAL Group requires substantial capital investment, such as for the purchase of new aircraft, and may procure funds from financial institutions or markets to meet these funding needs. The availability and cost of financing for us may be affected by outlook in financial markets, changes in our creditworthiness, and other factors, potentially leading to restrictions on financing or increased funding costs.
Additionally, the JAL Group has deferred tax assets on its balance sheet. If projections for the Group’s future taxable income decrease or if tax reforms lead to changes in taxation, it may become necessary to write off some of the deferred tax assets previously recorded. Such write-offs could temporarily impact the Group’s financial condition.
To address these risks, the JAL Group is implementing financial strategies aimed at maintaining and enhancing its cash flow generation capabilities and financing capacity. We are committed to ensuring a robust financial structure with strong resilience to risks.

The JAL Group’s operations are subject to various international legal restrictions and national and local government laws and regulations. Revisions to these laws and regulations may result in even heightened restrictions on our operations, which could lead to a significant increase in costs.

① Regulatory Risk
The JAL Group operates flights in accordance with various rules and regulations, such as Japan’s Civil Aeronautics Act and other regulations governing airline businesses, bilateral aviation agreements and other international arrangements, Japan’s Antimonopoly Act and other similar antitrust laws overseas, and rules on taxes and public dues such as landing fees. However, should these laws or rules undergo changes or notifications such as directives for improving airworthiness be issued, it could impact our operating performance.
Moreover, the allocation of takeoff and landing slots at key airports, such as Haneda Airport, which hold critical importance for the Group’s aviation operations, could also affect our business performance.
The JAL Group actively requests the relevant authorities, such as the Ministry of Land, Infrastructure, Transport and Tourism, as well as regulatory entities abroad to ensure a fair and competitive environment.

② Litigation Risk
Within the scope of our business activities, the JAL Group may be involved in lawsuits, which could potentially affect our business and financial performance. Furthermore, ongoing litigation, depending on its progression, may require additional expenditures or provisions for reserves, which could similarly impact our operating performance.
To mitigate significant risks, such as legal violations and anti-competitive behavior, the Group takes exhaustive measures to enforce compliance to those regulations among all employees and executives. These measures include compliance-related education and awareness activities.

The JAL Group operations are heavily dependent on information systems for much of its operations. If our IT systems were to encounter issues caused by software malfunctions or cyberattacks such as computer viruses, the resulting disruptions could lead to the loss of critical data and hinder flight operations. This may, in turn, affect the Group’s business operations. Additionally, large-scale outages in the essential infrastructure supporting our IT systems, such as power supplies, communication networks, or the Cloud services used for tasks such as email communication, could severely disrupt our business operations.
Moreover, if the personal information of our customers were to be leaked due to inadequate handling or data breaches caused by unauthorized access, this could damage the social perception of our business, systems, and corporate brand. Such incidents may erode the trust of customers and the market, potentially affecting our business operations and performance.
To address these risks, the JAL Group promotes the acquisition and maintenance of international certifications for information security, which is called ISO 27001, across the entire JAL Group. Efforts are made to enhance the quality of information security include regular training for all employees on personal information handling and simullation exercises to prepare for targeted email attacks. Furthermore, we maintain an around-the-clock monitoring system for threats such as unauthorized access or virus infections. In the event of a cyber incident, we will establish a cyber-incident response system to ensure prompt actions and implement prevention measures. Also, we are covered by insurance coverage for potential personal information leak.

JAL Group businesses are dependent on hiring human resources who possess national certificates or other legally required qualifications related to aircraft operation. However, due to the considerable amount of time required to acquire these qualifications and skills during the course of their duties, the JAL Group may not be able to hire sufficient human resources when necessary, which could affect our business performance.
In addition, many of our employees belong to labor unions, and a collective strike or other labor disputes could affect flight operations.
The JAL Group will strive to improve recruitment competitiveness, reduce the turnover rate and maintain good labor-management relations.