The JAL Group announced the consolidated financial results for the first quarter of FY2020. Beginning this fiscal year, the Company will apply IFRS (International Financial Reporting Standards) to the consolidated financial results. In order to make a comparative analysis in this release, IFRS will be applied to the figures from FY2019.
Due to the global impact of COVID-19, travel demand decreased sharply during the first quarter (April-June) on both international and domestic markets. As a result, Operating Revenue decreased to 76.3 billion yen, down 78.1% year-over-year. In order to counteract the significant decrease in revenue, flexible and fixed cost reduction measures were pursued, however, EBIT recorded a loss of 131.0 billion yen, and Profit/Loss figures recorded a loss of 93.7 billion yen during the first three months of FY2020.
As strict travel and quarantine restrictions were imposed on a global scale, international passenger demand decreased by 98.6% when compared to previous year results. As such, international passenger revenue recorded 2.7 billion yen, down 97.9% year-over-year. For the domestic market, travel was discouraged during the state of emergency and passenger demand decreased by 86.7%, resulting in domestic passenger revenue reaching 18.9 billion yen, down 85.1% year-over-year.
During the three months from April to June, the Company operated 3,754 cargo-only flights with passenger aircraft to deliver much-needed goods, including medical supplies, on its international network. As a result, cargo revenue increased 16.9% year-over-year, recording 26.5 billion yen. As announced, ZIPAIR Tokyo launched cargo-only flights between Narita and Bangkok starting June 2020.
Details of the consolidated financial results are as follows:
Recovery in Travel Demand – Forecast
– International Market – As strict quarantine measures continue to be in place for the international market, recovery is expected to be delayed for the long term. Going forward, the Company will continue to review travel restrictions within each country and update its international network plan.
– Domestic Market – Since the state of emergency in Japan was lifted at the end of May, travel demand tentatively returned to a certain level. However, as a new wave of cases has been reported in Japan, a sense of uncertainty is expected for the immediate future.
– Cargo Market – In order to help keep businesses moving throughout the world, the Company will continue to operate cargo-only flights on its international network.
Cost Reduction Measures
– Operating Expenses have been reduced by 125.0 billion yen year-over-year
– Revenue and Capacity-linked expenses have been reduced by 108.4 billion yen year-over-year, which equates to approximately 40% of the reduced operating revenue during the first quarter of FY2020 (272.4 billion yen)
– Fixed Costs (i.e. IT/Personnel/Advertisement expenses) have been reduced by 16.6 billion yen year-over-year. In addition, expenses initially set for the launch of new international flights (via new slots at Haneda) will also be reduced to reach a total of 29.0 billion yen, allowing the Company to reach approximately half of the targeted 60.0 billion yen reduction in expenses throughout FY2020.
– During this fiscal year, the Company plans to reduce an additional 30.0 billion yen in expenses to reach a total reduction of 90.0 billion yen.
CAPEX/Investment Reduction Measures
A total reduction of 80.0 billion yen is being targeted by reducing an additional 30.0 billion yen for aircraft deliveries. Previously, a forecast of 50.0 billion yen in reduction was announced in the original plan.
JAL Group Consolidated Financial Position and Liquidity at Hand
– Since February, the Company raised approximately 300 billion yen.
– The credit line, which remains unused, was increased by 150 billion yen to reach a total of 200 billion yen.
– As of the end of June 2020, cash on hand is 394.3 billion yen.
– Balance of Interest-bearing Debts increased but D/E ratio still remains at the level of 0.5x.
– Repayment of interesting-bearing debts within one year is limited to 50.7 billion yen
Consolidated Financial Forecast for FY2020 (Ending March 31, 2021)
Due to the unforeseeable circumstance surrounding the impact of COVID-19, the financial forecasts for FY2020 will remain as undetermined for the immediate future.
– If travel demand on both International and Domestic operations return according to the forecasts shown below, the Company can expect a recovery of approximately 35-45% in Operating Revenue versus previous year results.
– Considering other revenue and further cost reductions, the impact on EBIT is estimated at approximately 50% of the reduced Consolidated Revenue, including both International and Domestic Passenger Revenue.
The global impact of COVID-19 has had a significant impact on the JAL Group. Therefore, in order to secure liquidity at hand, the Company has determined to not provide an interim dividend payment to the shareholders and have asked for their understanding during the unprecedented crisis.
For the forecast of year-end dividends and the total dividends per share for the fiscal year ending March 2021, it will continue to remain as undetermined as JAL’s performance during the global pandemic is not foreseeable at this moment.