Japan Airlines (JAL) is to reintroduce its own full freighter fleet, introducing three converted Boeing 767-300ERs in the final quarter of the financial year 2023 (January-March 2024). The airline says it wants to capture stable demand on the cargo, e-commerce, and postal market and become less exposed to fluctuations in demand and market conditions, said in a strategy update on May 2. Japan Airlines to reintroduce freighter-fleet. JAL used to operate its own full freighter until 2010 but moved to using its own belly capacity and chartering flights and capacity with other companies. This worked fine for some time and JAL made good money with cargo during the pandemic, but market conditions have changed since then.
To make sure that its growth strategy is based on stability, JAL will establish its own small cargo fleet. It will start with international service within Southeast Asia in FY23 and add domestic services at a later stage. With an expected shortage of truck drivers in Japan to become evident from 2024 as labor regulations will change, air cargo services could be a solution to that problem. The new strategy doesn’t mean that JAL will no longer collaborate with logistics partners. On the contrary, in FY24 a new partnership with Yamato Holdings will be launched which specifically targets the domestic market and the capacity issues expected with road cargo. Yamato and JAL will jointly operate three converted Airbus A321P2Fs, while more capacity will be sourced flexibly according to demand.
Back to a profit
Japan Airlines reported a ¥34.4 billion net profit attributable to shareholders for FY22, which closed on March 31, compared to a ¥-177.6 billion in FY21. This marked a return to profitability for the full year for the first time since the pandemic, which follows on a 9M profit announced in February. JAL Group reported ¥1.376 billion in total revenues versus ¥683 million the year before. International revenues from 4.3 million passengers grew to ¥417.5 billion from ¥68.7 billion, domestic to ¥451.1 billion from ¥235.1 billion thanks to 30.1 million passengers, and cargo to ¥224.7 billion from ¥218.3 billion. The low-cost carriers ZIPAIR (488.000 passengers) and Spring Japan (481.000 passengers) generated ¥31.7 billion in revenues, up from ¥2.9 billion in FY21.
Operating expenses increased by 143 percent to ¥1.345 billion, with fuel costs up by 223 percent to ¥323.3 billion. This resulted in a pre-tax profit of ¥64.5 billion compared to ¥-239.4 billion the year before. The cash flow from operating activities was ¥292.9 billion versus ¥-103.5 billion. JAL ended the year with ¥639.2 billion in cash and cash equivalents. In its outlook, JAL is positive about incoming international traffic, which gradually recovered since restrictions have been lifted last October. The biggest growth has been between Asia and North America and this is set to continue, but the reopening of China will result in high demand in the coming months. Traffic originating in Japan and domestic travel is still behind expectations, says JAL, with inflation and adverse currency exchange rates not helping. During peak times like the national holidays in May, New Year, and Spring holidays, passenger numbers recovered to ninety percent of 2019 levels. Cargo continued to be strong for JAL despite a decline that started after the summer. Demand between Asia and North America remained strong and helped JAL to generate more revenues than in FY21, although unit prices have dropped. LCC subsidiary ZIPAIR has seen “steady progress” in business operations and reported good load factors and strong demand. The carrier added San Jose to its network in December and will launch services to Manila and San Francisco this summer. Spring Japan and Jetstar Japan operated mostly on domestic flights in 2022, but Spring Japan has high expectations of capturing market share in China, which is its prime market.
Strategy update
In its 2023-2025 strategy update, Japan Airlines intends to grow its full-service carrier by expanding the network while reducing its environmental footprint by the introduction of more fuel-efficient aircraft. The first Airbus A350-1000 is to arrive in FY23, with a fleet of nine operational in FY25. By then, JAL expects to operate around 232-238 aircraft, which brings it back to 2019 levels. From FY26, the airline will introduce the MAX 8 into the fleet, of which it recently ordered 21. For its fleet strategy, JAL secured ¥26.5 billion as a transition-linked loan with specific use of proceeds in March 2023. The LCCs will have to respond flexibly to market opportunities, with ZIPAIR seeking aggressive growth in North America and Asia, Spring Japan in China, and Jetstar Japan in various Asian markets. JAL targets an EBIT in FY23 of ¥100 billion and of at least ¥185 billion in FY25, up from ¥64.5 billion last year. The EBIT margin should be at six percent in FY23 and a minimum of ten percent in FY25, up from 4.7 percent in FY22. The group plans to invest ¥650 billion in the coming three years but could invest extra in human resources to push forward with its ESG targets while repaying ¥300 million in debt. “The COVID-19 pandemic has had a profound impact on many industries including aviation, and has brought profound changes that have overturned social and economic assumptions,” the airline says in its financial statements. “Although passenger demand is recovering, the speed of recovery, especially for flights from Japan, is still lacking due to the spread of remote working, currency fluctuations, and soaring fuel prices. However, the JAL Group has overcome the unprecedented situation of a sharp and significant decline in demand and is firmly in place to fully capture the recovering demand, including resuming the recruitment of human resources toward medium-to-long-term growth.”