Japan's major airlines have revealed disappointing financial performances in 1996/7, as higher fuel charges and a weak yen eroded operating profits, but the carriers are optimistic that there will be improvements this year.

Japan Airlines (JAL) swung back into the red with an overall net loss of ´9.2 billion ($80 million) for the financial year to March 1997, having managed to stay just above break-even the year before. The group's operating profits also tumbled by 70%, although the result was slightly better than JAL's earlier forecast of only a break-even.

"The results are generally encouraging, after what has been a disappointing year. They were hit by the weakness of the yen, higher fuel costs and declining yields on international markets," says Douglas Hayashi at BZW Securities.

JAL is forecasting a strong upswing during the current financial year, leading to operating profits of ´28 billion. The airline is already implementing a fresh round of cost-cutting measures, while at the same time focusing more effort on expanding its domestic and regional services (Flight International, 21-27 May).

All Nippon Airways (ANA) fared only marginally better than JAL over the 1996/7, seeing ´10 billion shaved off operating profits. Earnings from aircraft sales and leasebacks helped to boost the airline's overall net income to ´3.9 billion, and ANA hopes to keep it at that level this year.

Analysts are more guarded about ANA's prospects for a rapid turn-around in business, particularly in the wake of the recent resignation of the carrier's hardline president Seiji Fukatsu.

The airline has failed to cut costs as drastically as has JAL, and has been forced to back down on introducing new reduced salary scales.

ANA, in addition, has announced ambitious plans to expand its international services, which will require high investment and expose it to greater competition. "As they boldly step into the international market, others are gingerly stepping into the domestic market, which will erode ANA's position at both ends," says HSBC James Capel senior analyst Paul Smith.

Smaller domestic carrier Japan Air System (JAS) posted a little-improved operating loss of ´322 million, as costs increased and domestic seat yields continued to come under pressure. As with ANA, however, gains from equipment sales took the airline to a net profit of ´175 million, and JAS forecasts that the figure will more than double this year. JAS also claims to have saved ´2 billion in labour costs over the past 12 months by switching to new short-term contracts for cabin crew.

Source: Flight International