Japan Airlines (JAL) has accelerated its medium-term management plan and targets a return to FY19 profit levels already this year, one year earlier than outlined last year in the 2022-2025 strategy. The airline also puts Environmental, Social, and Governance (ESG) at the core of the updated plan, JAL said on May 6 at the presentation of its FY21 results. Japan Airlines targets a quicker return to profitability. The medium-term plan is a stepping stone toward JAL Vision 2030, a key ingredient to transform the Japanese carrier into a net-zero, sustainable, safe, social, and profitable airline by 2050. As the Covid-crisis lasts longer than expected and geopolitical issues (notably the war in Ukraine) destabilize the world and economy, JAL has seen the need to update the plan presented exactly a year ago. It also notes that the pandemic has changed travel habits, with more people working at home, and has given a huge boost to e-commerce, while the public debate on corporate values and sustainability has changed. For this reason, JAL puts ESG at the core of the revised plan. On the environmental side, JAL is now more committed to realizing a stable procurement of sustainable aviation fuels (SAFs), including joint procurement within the oneWorld alliance. Increasing SAF production and developing new e-fuels in Japan have also been added to the plan. This will take a lot of effort, as JAL acknowledges that a huge step in SAF production needs to be made before its meets the target of using ten percent of the fuels in 2030. Still, it wants to accelerate to make sure that the goals for 2030 are met. The target of a six percent reduction in CO2 emissions in 2025 is unchanged. The amended plan adds the option to consider hydrogen-powered aircraft to the fleet, but JAL doesn’t offer a timeline for when it expects to introduce them. Another consideration is the early introduction of new small and medium-sized aircraft as replacements for the 45 Boeing 737NGs. The introduction of drones and eVTOLs is also part of the ESG strategy. The airline has an agreement with lessor Avolon for 100 Vertical Aerospace VX4 vehicles and is also involved in Japanese eVTOL projects. A slide showing the financial targets that JAL Group has set for FY25. (JAL) The updated plan confirms the short-term strategy to introduce 31 Airbus A350-900s and -1000s through FY26 as a more eco-friendly and more fuel-efficient aircraft type that replaces the Boeing 777-200 and -300/-300ER. JAL has tentatively set a Model Flight for November with an A350 from Tokyo Haneda to Okinawa, flying on SAF for net-zero emissions (it doesn’t specify the blend), zero plastic, carbon offsetting programs for passengers, and a diverse team of employees to meet the social target of ESG. Higher revenues and profit margins The medium-term plan also updates the business strategy for JAL Group. As the full-service airline within the group, JAL will accelerate initiatives to increase profitability and produce sales of one trillion yen and more in FY25. The profit target of ¥80 billion in 2022, ¥170 billion in 2023, and over ¥185 billion in 2025 is unchanged, but JAL now has brought forward its target to recover profit to 2019 levels by one year to 2022 instead of 2023. It targets an EBIT of ¥100 billion and EBIT margin of eight percent in FY25. More use of belly space and freighter operations with partners (Yamamoto) should produce fourteen percent higher sales compared to 2019 to ¥200 billion. JAL's fleet sees a mix of 211 aircraft in FY25 compared to 216 in FY20 and 239 at the end of FY21. They include 26 A350s and eight 777s compared to a combined 28 in FY20, with more A350-1000s entering the international network and 777-200ERs transferred to the domestic network. The number of Boeing 767s and 787s will drop by six to 72 in FY25, and the number of 737s by seven to 54. Almost unchanged are the number of Embraer E170/E190s and ATR/De Havilland Canada Dash 8-400s at 32 and nineteen respectively. JAL’s low-cost airline ZIPAIR will grow its fleet from two aircraft in FY20 to eighteen in FY25, but this also includes Spring Japan. The two carriers will expand their network to North America, China, and Asia. Jetstar Japan should benefit from the introduction this July of the Airbus A321LR to make it more competitive. The multi-brand LCCs will aim at growing leisure and Visiting Friends and Relatives (VFR) markets and should produce ¥200 billion in sales, an EBIT of ¥19 billion, and an EBIT margin of sixteen percent in FY25. The projected fleet composition of JAL in FY25 sees more A350s and fewer 777s. (JAL) The JAL Mileage loyalty program, Jalux Lifestyle concept, and air mobility Infrastructure programs have to increase their share of EBIT in FY25 by five percent to 35 percent, producing ¥330 billion in sales, an EBIT of ¥65 billion, and an EBIT margin of twenty percent. JAL plans to launch its drone air mobility service JAL AIRTAXI in 2023 and air taxis in 2025, the year of Expo 2025 in Osaka. Last year, it did an experimental drone flight to deliver pharmaceuticals in Tokyo. JAL wants to keep fixed costs for the entire group at ¥500 billion, increase its equity ratio to fifty percent (previous target: 41.1 percent), and achieve net-zero interest-bearing debt in FY25. With a return to profitability this year, the Group wants to resume dividends again for FY22. Between FY22 and FY25, Japan Airlines plans to invest ¥660 billion to achieve the ESH targets. FY21 net loss reduced to ¥181 billion JAL reported a ¥-181.3 billion net loss for FY21 compared to ¥-287.9 billion in FY20. Its financial year runs from March to March. The operating loss was ¥-234.8 billion versus ¥390.4 billion. Total revenues grew to ¥682.7 from ¥481.2 billion. Operating expenses were up to ¥940 million from ¥885 million, with fuel costs almost one-third up to ¥145.5 billion. JAL Group carried 17.1 million passengers, up from 12.6 million. Of these, 16.2 million flew on the domestic network (FY20: 12.2 million), which was affected by the various states of emergency to try to curb infections. The international network saw 892.000 passengers, up from 357.000. The low-cost carriers contributed only marginally, with 70.259 passengers on the domestic and 38.320 on the international network. The report doesn't provide financial details of the low-cost carriers. Cargo produced ¥203.5 billion in revenues, up from ¥118.2 billion. In its guidance for FY22, Japan Airlines expects a net profit of ¥80 billion, with ¥1.390 billion in revenues. Domestic capacity is expected to recover to ninety percent of 2019 levels, but international will stay behind at just 45 percent, while cargo will remain strong. “With the above forecast, we expect a significant improvement in the Full-Service Carrier Business and LCC Business year-on-year”, JAL says in its consolidated financial statements.
