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Loss for Japan Airlines Surges in 3rd Quarter

Posted on: Tuesday, 7 February 2006, 15:00 CST

Japan Airlines said Monday that its third-quarter loss had tripled and cited rising fuel costs and safety lapses that prompted some passengers to switch to All Nippon Airways.

The company's net loss widened to 11.1 billion, or $93.3 million, for the three months through Dec. 31 from 3.7 billion a year earlier. Sales rose 3.9 percent, to 556.9 billion, compared with a gain of 7.5 percent at All Nippon.

"The repeated safety mishaps highlight a lack of control within the company," said Makoto Kikuchi of Myojo Asset Management Japan in Tokyo.

"I can't look at the company as a possible investment until it can demonstrate clear signs of recovery."

The carrier reported at least 14 safety lapses in 2005, including planes that took off and landed without permission. Its president, Toshiyuki Shinmachi, said he planned to cut four international routes and one domestic route and was trying to reduce salaries by 10 percent to restore earnings.

"We are feeling the impact of our previous safety trouble," the airline's general manager for finance, Toshiyuki Kawarabata, told journalists.

Japan Air's shares fell 6 to close at 320 in Tokyo. The shares have risen 1.9 percent over the past 12 months, compared with a 22 percent rise in All Nippon shares.

Japan Air predicted that safety errors would cost it 32 billion in full-year sales, equivalent to 1.5 percent of last year's revenue. The airline is likely to report a loss of 47 billion for the 12 months ending March 31, the carrier said, keeping its forecast unchanged. The company paid 102.8 billion for jet fuel in the third quarter, 28 percent more than a year earlier. The carrier will use financial contracts to hedge as much as 75 percent of its fuel in the year starting on April 1, about the same level as in the current year.

The price of jet fuel in Singapore averaged $70.59 a barrel in the October-December period, or 25 percent more than in the previous year, according to the oil-pricing service Platts.

Japan Air flew 11.1 million domestic passengers in the third quarter, 2.3 percent fewer than a year earlier, with revenue dropping 1.7 percent, to 163.7 billion.

The number of international passengers fell 7.9 percent, to 3.46 million, with sales rising 0.8 percent, to 167.8 billion, after the carrier raised its fuel surcharges.

For the first nine months of its fiscal year, it had a net loss of 23 billion, in contrast to a profit of 79.2 billion the year before. Sales rose 3.6 percent, to 1.67 trillion.

To help regain profitability in the next business year, the airline said it planned to cut the base salaries for employees by 10 percent starting in April, three months later than planned, after the airline failed to reach agreement with all nine of its labor unions.

The pay cut will reduce labor costs by 6 billion annually, the airline said.

Source: International Herald Tribune

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