Japan Airlines sees profit drop

November 7, 2008

, TOKYO, November  7 – Japan Airlines, Asia\’s largest carrier, warned Friday operating profits would slump 69 percent this year, hammered by high fuel costs and a tough economic climate.

The bleak outlook came as the airline reported a drop of almost half in its operating earnings in the first six months of the financial year to 30.23 billion yen (311 million dollars).

JAL lowered its full-year operating profit forecast to 28 billion yen from an earlier target of 50 billion. Last year it made a profit of 90 billion yen.

"Regrettably, the decline in sales is expected to be considerable" due to the worsening global economy, said JAL executive director Yoshimasa Kanayama.

Recent declines in oil prices and the stronger yen against the dollar, which contribute to a fall in fuel costs, could not offset the sharp decline in sales, he told a news conference.

In the first half, revenue slipped 6.1 percent to 1.07 trillion yen.

International passenger numbers fell 9.4 percent as "tourist demand remained weak and business demand, which had been strong in the first quarter, became stagnant as the effects of the global slowdown became evident," JAL said.

Fuel costs increased by 44.9 billion yen to reach 251.0 billion yen.

For the second half of the year to March 2009, JAL sees kerosene costs dropping to 90 dollars per barrel, from 148.9 dollars during the first half.

But the positive effects of lower fuel costs will only be seen next year, as the airline has been hedging its fuel costs for this year, said Kanayama.

Thanks to an increase in one-off profits and a decrease in extraordinary losses, first-half net profits increased five-fold to 36.67 billion yen, up from 7.31 billion a year earlier.

JAL left unchanged its forecast for a net profit of 13 billion yen for the full year to March due to the tough business climate, signalling that it expects its bottom line to fall into the red in the second half of the year.

The airline has slashed thousands of jobs, scrapped unprofitable routes and introduced more smaller, fuel-efficient aircraft to try to restore its health in the face of high energy costs and sluggish demand.

"Our restructuring efforts are steadily progressing," Kanayama said.

JAL\’s smaller rival All Nippon Airways, last week revised down its full-year profit forecasts by more than one-third as demand for air travel slows due to the global economic crisis.

ANA has in recent years consistently outperformed its larger rival Japan Airlines by hedging high fuel costs and making efforts to cut fixed costs.

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