Japan Airlines (JAL) has set some aggressive targets for the current decade to 2030 to become more profitable, competitive, and sustainable. It presented its medium-term management plan on May 7, which includes a projected EBIT of Yen 170 billion in FY23, Yen 185 billion in 2025, and around Yen 200 billion by 2030. For comparison: the carrier announced a YEN -398.3 billion EBIT today, down from Yen 88.8 billion in 2019. So the carrier will have some work to do, but Japan Airlines is on an aggressive strategy to recovery.
The effects of the Covid-crisis, which has had an impact of seventy percent on business, require a new approach to return to profitability. Like SWISS said on Thursday and other airlines have stated, the pandemic will lead to structural changes in air travel and customer behavior.
Japan Airlines wants to remain a full-service carrier but smaller than before the crisis and with an optimized network, resuming its previously highly-profitable international routes.
EBIT to grow to Yen 170 billion in 2023
To get to the projected EBIT of Yen 170 billion in FY23 from Yen 88.8 billion in 2019, Yen 43 billion is expected from the recovery of air travel post-Covid and Yen 10 billion from the optimized network at JAL’s low-cost subsidiaries. Cargo and mail should contribute by Yen 12 billion as they become steady revenue generators and as belly space use is optimized. JAL’s Mileage, financial, and merchandise services are also expected to contribute with Yen 16 billion.
The EBIT margin should be up by ten percent in FY23, debt reduced, operating cash flow improved, and more funds available for investments. The company will spend Yen 150 billion per year for the next three years to bring Capex to Yen 450 billion, plus another Yen 400 billion earmarked for FY24 and FY25.
JAL’s full-service carrier intends to strengthen its network out of Tokyo Haneda, especially on the business market segment. Although business travel has suffered during the pandemic, JAL expects a recovery in 2023. Domestic routes will be re-arranged to boost profitability. Tokyo Narita will become a key hub for Japan to North America network.
Cost reductions have to come from suspending low-profitable routes but also from reducing and optimizing its fleet. The number of widebodies will go down as JAL retires 26 Boeing 777-200s and -300s (not the ERs), all with Pratt & Whitney PW4000s following two serious engine-related incidents on a JAL and United 777. Only thirteen will remain in FY23. The 777-200ERs will be redeployed to domestic routes.
JAL’s fleet strategy up to FY23. (Japan Airlines)
A350 will play a prominent role
By contrast, the Airbus A350 features prominently in JAL’s strategy. The airline currently has eight -900s in domestic service but will deploy them to international routes as soon as traffic returns. Another ten A350s will join the airline until FY23, including the first -1000 this year. JAL has thirteen of the longest A350s on order, together with eighteen -900s from an order announced in October 2013.
In FY23, the combined A350/777-fleet will stand at 31. The number of 767s and 787s will remain about static at 82, as it’s the 737-fleet at 65, the Embraer regional fleet at 32, and the turboprop fleet at nineteen. Some aircraft will get a cabin update.
Low-cost subsidiaries have work to do
Japan Airlines’ Group includes three low-cost carriers: Zipair, Spring Japan, and Jetstar Japan. They will have a key role in the revised medium-term strategy with planned revenue growth.
Spring Japan, which is focused on China and partners with Spring Airlines, will be fully integrated within JAL in June. The airline will expand its activities and open up new routes to cities with populations of ten million or more.
Zipair, which launched in the middle of the pandemic in October 2020, will expand its low-yields presence into Asia, the US West Coast, and Hawaii out of Narita. The airline has just two 787-8s but the strategy includes the growth to ten in FY24 by adding two aircraft each year.
Jetstar Japan, a partnership with Qantas that focuses on the Japanese domestic market, will go through a business restructuring as the network and fleet are to be reviewed. It has a fleet of 22 A320ceo’s and one A321neo.
Zipair will grow its 787-fleet from two to ten in FY24. (Zipair)
Japan Airlines’ aggressive strategy to recovery also sets new targets on sustainability. The airline wants to reach net-zero carbon emissions in 2050 by renewing the fleet with aircraft that are fifty percent more fuel-efficient, expand the use of sustainable aviation fuels (SAFs) to 45 percent. The first service on SAFs was operated this February. Emissions from daily operations will be reduced by five percent. By 2025, emissions should be below 9.09 million tons are level to 2019, and by 2030 below 8.18 million tons.
JAL is also preparing initiatives for the commercialization of services by using drones. It is in the preparatory stage to lay down the regulatory framework for safe operations, but in FY23 it plans to go live and use small drones for logistical purposes in local cities. This will grow to bigger drones in major cities from FY25 and possibly even to flying cars when they become available. Like digitalization, it is one of the initiatives that will transform JAL from being ‘just’ an airline.
Net loss FY20 of Yen -286.7 billion
Japan Airlines reported a Yen -286.7 billion loss for 2020, compared to a Yen 48 million profit in 2019. The operating loss was Yen -342.3 billion versus a Yen 56.8 billion profit. Revenues were down by 65.3 percent to Yen 481.2 billion.
Passenger revenues on international routes collapsed from Yen 486.2 billion to just 27.9 billion. Domestic revenues were down from Yen 529.7 billion to Yen 174 billion. Cargo and mail showed growth, from Yen 91.6 to Yen 128.8 billion. Available seat kilometers were -77.9 percent. For now, the outlook is too blurred for any relevant forecast on the current financial year 2021.
Earlier this week, Australia’s consumer regulatory agency ACCC said it intends the proposed partnership between JAL and Qantas as it deems that it will undermine consumer’s interests on routes between Japan and Australia.