All Nippon Airways (ANA) produced its first half-year profit in three years, benefitting from pent-up demand and the relaxation of travel restrictions in Japan and its key markets in Asia. Longer term, the airline wants to significantly improve profitability by introducing a new strategy. ANA reports HY1 profit and announces strategy review.
The carrier reported a ¥19.5 billion net profit attributable to shareholders in HY1 FY2022, compared to ¥-98.8 billion in March-September 2021. The operating income was ¥31.4 billion, up from ¥-116 billion. Operating revenues improved to ¥790.7 billion from ¥431.1 billion, but expenses were also up to ¥759.2 billion from ¥547.1 billion. Fuel costs almost doubled to ¥170.5 billion, with 35 percent of fuel hedged this financial year. Free cash flow was ¥150.2 billion, a significant improvement from ¥-125.8 billion in FY2021. ANA already produced a small profit in Q1 of ¥1.002 billion.
With the lifting of travel restrictions in Japan, leisure travel surged during the summer and holiday periods. Corporate travel also slowly recovered. The number of passengers carried more than doubled from 7.1 to 15.2 million, but load factors were up to only 58.2 percent. To cope with higher demand, ANA redeployed more Boeing 777-200s on domestic routes in June after their Pratt & Whitney PW4000 engines had been refurbished and intends to bring back all ten into service. Passenger revenues increased to ¥242.8 billion from ¥111.8 billion.
ANA’s international business remained rather low profile, carrying just 1.7 million passengers up from 326.000 in the same period last year at 72.8 percent load factor. The airline reported strong demand on the routes to North America and carried many Japanese ex-pats that were finally returning home after a long period abroad due to the Covid-restrictions. Operations to Europe remain impacted by the war in Ukraine and the closure of Russian airspace, while access to China is still restricted as Covid-measures remain in place. International revenues grew to ¥161.4 billion from ¥30.4 billion.
All Nippon earned good money with cargo during the pandemic. International cargo revenues were up again in HY1 to ¥183.5 billion from ¥138.3 billion, the effect of high yields. However, freight carried was down to 424K tonnes from 476K tonnes last year. Domestic cargo was slightly up to 122K tonnes from 120K tonnes, but revenues were lower to ¥11.8 billion from ¥12.1 billion.
Peached produced a higher domestic load factor
The recovery of domestic passenger traffic is also evident in the result of ANA’s low-cost airline Peach, which carried 3.7 million passengers, up from 1.6 million last year. At 69.8 percent, load factors were higher than on ANA’s own domestic services. Peach also resumed international services to Seoul and Taipei. Passenger revenues totaled ¥40.8 billion versus ¥13 billion last year. Peach was the only airline within the group to receive new aircraft in HY1: one Airbus A321neo and one A321LR, but it also retired four A321ceo’s. This brought the fleet to 33 aircraft, with the parent airline operating 237.
“The positive results of the first half of the fiscal year demonstrate the progress we have made since the pandemic began and the determination and effort of our employees to help put the ANA Group in a favorable financial and operational position”, said Kimihiro Nakahori, Executive Vice President and Group Chief Financial Officer said in the earnings release. ANA ended September with ¥997 billion in liquidity and an interest-bearing debt of ¥1.6 billion.
ANA expects to recover the number of passengers carried on its international network to 40 percent in Q3 FY22 (April-June 2023) and to 55 percent in Q4 (June-September) before hitting 60 percent by July. For ANA Domestic, the numbers are 80 and 85 percent respectively, or 90 and 95 percent if Peach is included.
Strategy review
Although results are improving, ANA is finalizing a mid-term strategy review to improve profitability. It intends to share the full plan next spring at the presentation of its full-year FY22 results but already gave away numerous details today. ANA wants to maximize profits from its airline business by optimizing its brand portfolio and growing its international, leisure, ‘inbound’, and cargo business. It also wants to realize cost efficiencies through more digitalization and labor savings. Non-air revenues also have to grow through the offering of new (digital) products. Interestingly, today’s presentation made no reference at all to ANA’s muted third brand AirJapan, which it planned to launch in late 2023 or early 2024.
All Nippon already set itself new targets for improved profitability during the pandemic. This year’s target includes an operating income of ¥65 billion, up from the previous full-year guidance of ¥50 billion. Operating revenues should grow from ¥1.660 billion to ¥1.700 billion, while ANA upped the guidance for its net profit from ¥21 billion to ¥40 billion. In the mid-review plan, these targets are set even higher: the operating income goes up to ¥200 billion, operating revenues to ¥2.000 billion, and the operating margin to ten percent. Capital expenditures are estimated at ¥250 billion per year.
